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Full text of "Modern corporate reports to stockholders, employees and the public"

c ; ; ■ > e R N 



Corporate reports 



TO STOCKHOLDERS, EMPLOYEES AND THE PUBLIC 



UNIVERSITY 
OF FLORIDA 
LIBRARIES 




MODERN 
CORPORATE REPORTS 



TO STOCKHOLDERS, EMPLOYEES AND THE PUBLIC 



by 

LILLIAN DORIS 

CO-AUTHOR: CORPORATE MEETINGS, MINUTES AND 
RESOLUTIONS; CORPORATE SECRETARY'S MAN- 
UAL AND GUIDE,- CO-EDITOR: BUSINESS 
EXECUTIVE'S HANDBOOK 



New York 

PRENTICE-HALL, INC. 



1948 



: ? 

.9- 



COPYRIGHT, 1948, BY 

PRENTICE-HALL, INC. 

70 FIFTH AVENUE, NEW YORK 



l'RINTED IN THE UNITED STATES OF AMERICA 



To 
CHARLES W. GERSTENBERG 



WHO HAS UNCEASINGLY GIVEN ABUNDANT IN- 
SPIRATION TO HIS STUDENTS, WARM UNDER- 
STANDING TO HIS ASSOCIATES, AND REGARD 
AND AFFECTION TO HIS FRIENDS 



• 









I 



PREFACE 



Each new annual report is a challenge to present 
an informative story in the most interesting and 
understandable way. Since interest wanes with 
repetition of an idea, most report writers vary 
even the most attractive portions of their annual 
reports from year to year. Because of this prac- 
tice, this book has been developed principally as 
an ideas book for those who participate in writing 
annual reports. The ideas plan is especially no- 
ticeable in Chapters 5 through 13, dealing with 
reporting on specific subjects. In each of these 
chapters the following five-part scheme has been 
followed in presenting ideas: 

1. Checklists of what to cover in the commen- 
tary or text. 

2. Checklists of ideas for charts and graphs. 

3. Ideas for statistical presentations. 

4. Selected excerpts from actual annual reports. 

5. Reproductions of graphic illustrations. 

In preparing this book, the broadest view has 
been taken of the purposes to be served by mod- 
ern annual reports. The annual report has been 
regarded as an instrument for telling the com- 
pany story to stockholders, employees, and any- 
one who should be interested in it. It has been 
looked upon as a medium for establishing good- 
will for the reporting company and for business 
generally. Since one of industry's major tasks in 
gaining public goodwill is to counteract attacks 
against private enterprise, every opportunity has 
been taken to point out places in the annual re- 
port where brief explanations of fundamental 
economic truths can be appropriately and effec- 



tively included. Many excerpts have been used 
to demonstrate how these truths can be set forth 
simply and convincingly. 

The author acknowledges with thanks the valu- 
able assistance given her by the individuals and 
companies listed in the following pages. They 
include the people and firms who participated in 
the surveys conducted by the author and who of- 
fered help through personal interviews, corre- 
spondence, and in other ways. The author also 
acknowledges to thousands of unidentified com- 
panies her thanks for the annual reports they 
made available and for the ideas gleaned from 
them. 

Special thanks are due to Weston Smith, who 
read several chapters of the book and helped con- 
siderably with his suggestions and criticisms; to 
Dr. Frederick E. Croxton, Professor of Statistics, 
Columbia University, who reviewed the explana- 
tions of charts and graphs in Chapter 16; to Besse 
May Miller, who did some of the research on 
stockholder relations for Chapter 18; and to Dr. 
Rudolph Flesch, who wrote Chapter 15. The 
editorial staff of Geffen, Dunn & Company stud- 
ied the major part of the text and offered a wealth 
of constructive criticism based on its experience 
in planning and writing annual reports for lead- 
ing corporations. Geffen, Dunn & Company also 
gave valuable assistance in planning the typog- 
raphy of the book. The author is indeed grate- 
ful for all this help. 

Lillian Doris 



IV 



ACKNOWLEDGMENTS 



A.P.W. Products Co., Inc. 

ATF Incorporated 

Abbott Laboratories 

Acme Steel Company 

Adam Hat Stores, Inc. 

Addressograph-Multigraph Corporation 

Rodney R. Adler 

Admiral Corporation 

Air Reduction Company, Incorporated 

Alaska Airlines Inc. 

Allegheny Ludlum Steel Corporation 

Allied Chemical & Dye Corporation 

Allied Stores Corporation 

Allis-Chalmers Manufacturing Company 

Alpha Portland Cement Co. 

American Box Board Company 

American Can Company 

American Colortype Company 

American Encaustic Tiling Company, Inc. 

American Hard Rubber Company 

American Hawaiian Steamship Company 

American Home Products Corporation 

American Locomotive Company 

American Machine & Foundry Company 

American Management Association 

American Radiator & Standard Sanitary Corporation 

The American Rolling Mill Company 

American Telephone and Telegraph Company 

American Type Founders, Inc. 

Anaconda Copper Mining Company 

Argus, Inc. 

Armour & Company 

Armstrong Cork Company 

Associated Electric Company 

Association of American Railroads 

Atlantic Refining Company 

Atlas Powder Company 

Ayershire Collieries Corporation 

B. T. Babbitt, Inc. 

Raymond L. Balasny 

The Baltimore and Ohio Railroad Company 

Bangor and Aroostook Railroad Company 

Ludwig Baumann 

Beatrice Foods Co. 

Belden Manufacturing Company 

Bell Aircraft Corporation 

Bendix Aviation Corporation 

Blaw-Knox Company 



Boeing Airplane Company 
Bohn Aluminum 8c Brass Corp. 
The Borden Company 
Braniff International Airways 
Bridgeport Brass Company 
Bristol-Myers Company 
Brown & Bigelow 
Brown Company 
C. Franklin Brown, Inc. 
The Budd Company 
Burlington Mills Corporation 
Verne Burnett 

Burroughs Adding Machine Company 
Harold Cabot & Co., Inc. 
California Packing Corporation 

Calumet and Hecla Consolidated Copper Company 
Canada Dry Ginger Ale, Incorporated 
The Carborundum Company 
Ray Carr Organization 
^Carrier Corporation 
J. I. Case Company- 
Caterpillar Tractor Co. 
Celanese Corporation of America 
Central Power and Light Company 
The Central Railroad Co. of New Jersey 
Century Ribbon Mills, Inc. 
The Champion Paper and Fibre Company 
Cherry-Burrell Corporation 
The Chesapeake and Ohio Railway Company 
Chesebrough Manufacturing Company, Consolidated 
Chicago and North Western Railway Company 
Chile Copper Company 
Chrysler Corporation 
Cincinnati Gas & Electric Company 
Cities Service Company 
Clark Equipment Co. 
Cleveland Electric Illuminating Co. 
The Cleveland Graphite Bronze Company 
The Coca-Cola Company 
The Coleman Company, Inc. 
Columbia Gas & Electric Corporation 
Commonwealth Edison Company 
The Commonwealth k Southern Corp. (N.Y.) 
Connecticut Railway & Lighting Company 
Consolidated Edison Company of New York, Inc. 
Consolidated Natural Gas Company 
Consolidated Vultee Aircraft Company 
Continental Baking Company 



ACKNOWLEDGMENTS 



Continental Can Company, Inc. 

Continental Motors Corporation 

Controllership Foundation, Inc. 

Copperweld Steel Company 

Corn Products Refining Co. 

Corning Glass Works 

Crandall & Kelsey 

Crane Co. 

Creole Petroleum Corporation 

The Crowell-Collier Publishing Company 

Crowley Milner & Co. 

Professor Frederick E. Croxton, Columbia University 

The Cudahy Packing Company 

Deere & Company 

Delta Air Lines Incorporated 

The Detroit Edison Company 

The Diamond Match Co. 

Dickie-Raymond Incorporated 

Dictaphone Corporation 

Walt Disney Productions 

Dixie Cup Company 

Dominion Stores, Limited 

Doremus & Company 

Douglas Aircraft Company, Inc. 

W. L. Douglas Shoe Co. 

The Dow Chemical Company 

E. I. du Pont de Nemours & Company Incorporated 

The Duplan Corporation 

Duquesne Brewing Company of Pittsburgh 

Eastern Stainless Steel Corp. 

Eastman Kodak Company 

El Paso Electric Company 

Electric Boat Company 

Emerson Radio & Phonograph Corporation 

The Emporium Capwell Co. 

Erie Railroad Company 

Eversharp, Inc. 

Falstaff Brewing Corporation 

Fansteel Metallurgical Corp. 

Federated Departments Stores, Inc. 

The Flintkote Company Incorporated 

Florida Power Corporation 

Food Fair Stores, Inc. 

Ford Motor Company of Canada Limited 

Foremost Dairies, Inc. 

I hi i Pitt Bridge Works 

Franklin Square National Bank 

Freeport Sulphur Company 

Fruehauf Trailer Company 

Robert Gair Company, Inc. 

Gaylord Container Corporation 

Geffen, Dunn & Company 

General Aniline & Film Corporation 

General Bronze Corp. 

General Electric Company 

General Finance Corporation 

General Foods Corporation 



General Mills, Inc. 

General Motors Corporation 

General Outdoor Advertising Co., Inc. 

General Railway Signal Co. 

General Refractories Company 

General Shoe Corporation 

General Telephone Corporation 

Georgia Power Company 

Gerber Products Company 

Gimbel Brothers 

Goldblatt Bros., Inc. 

B. F. Goodrich Company 

The Goodyear Tire & Rubber Company 

H. T. Grant Co. 

Graphics Institute 

The Gray Manufacturing Company 

Great Northern Railway Company 

H. L. Green Co., Inc. 

The Greyhound Corporation 

Gulf, Mobile & Ohio R.R. Co. 

Haloid Company 

Hamilton Watch Co. 

Hammermill Paper Company 

Harris Seybold Co. 

The Hartford Gas Co. 

A. Hollander & Son, Inc. 

Houdaille-Hershey Corporation 

Humble Oil & Refining Company 

Hunt Foods, Inc. 

The Hydraulic Press Manufacturing Company 

Imperial Oil Limited 

Inland Steel Company 

International Cellucotton Products Co. 

International Harvester Company 

International Minerals & Chemical Corporation 

International Paper Company 

International Telephone arid Telegraph Corp. 

Iron Fireman Manufacturing Company 

The Jam Handy Organization 

Jantzen Knitting Mills, Inc. 

Jewel Tea Co., Inc. 

Johns-Manville Corporation 

Joy Manufacturing Company 

Roger Kafka 

Kaiser-Frazer Corporation 

J. H. Kelleghan & Company 

The Kelley Island Lime & Transport Co. 

M. W. Kellogg Company 

Kennecott Copper Corporation 

Keystone Steel & Wire Co. 

Kottcamp & Young 

La Plant-Choate Manufacturing Co., Inc. 

Lane Bryant, Inc. 

Lehigh Coal & Navigation Company 

Lehigh Portland Cement Company 

Hotel Lexington, Inc. 

Libbey Owens Ford Glass Co. 



VI 



ACKNOWLEDGMENTS 



Libby McNeill 

Link-Belt Company 

Louisville Gas and Electric Company 

Maciadden Publications, Inc. 

R. H. Macy & Co., Inc. 

P. R. Mallory & Co., Inc. 

Manz Corporation 

Marathon Corporation 

Marion Power Shovel Company 

Marmon-Herrington Company, Inc. 

The Mathieson Alkali Works (Inc.) 

McCall Corporation 

McKesson & Robbins Incorporated 

The Mead Corporation 

M. K. Mellott & Co. 

Metropolitan Life Insurance Company 

Michigan Bell Telephone Company 

Michigan Consolidated Gas Company 

Michigan Steel Tube Products Company 

Minneapolis Honevwell Regulator Company 

Missouri-Kansas-Texas Lines 

Monsanto Chemical Company 

Montgomery Ward & Co., Incorporated 

The Murray Corporation of America 

Nash-Kelvinator Corporation 

The National Breweries Limited 

The National Cash Register Company 

National Container Corporation 

National Dairy Products Corporation 

National Gypsum Company 

National Lead Company 

The National Process Company, Inc. 

The National Sugar Refining Company 

National Vulcanized Fibre Company 

The New Jersey Zinc Company 

New York Central System 

New York State Elec. &: Gas Corp. 

New York Stock Exchange 

Newport News Shipbuilding & Dry Dock Co. 

Niles-Bement-Pond Company 

North American Aviation, Inc. 

Opinion Research Corporation 

Otis Elevator Company 

Pacific Gas and Electric Company 

Packard Motor Car Company 

Penn Mutual Life Insurance Company 

J. C. Penney Company 

Pennsylvania-Central Airlines Corporation 

Pennsylvania Power &: Light Company 

The Pennsylvania Railroad Company 

Pennsylvania Telephone Corporation 

Pepperell Manufacturing Company 

Pepsi-Cola Company 

Pfeiffer Brewing Company 

Philadelphia Electric Company 

Philco Corporation 

Philip Morris 2c Co. Ltd., Inc. 



Phillips Petroleum Company 

Pick-S 

Pitney-Bowes, Inc. 

Pittsburgh Consolidation Coal Company 

Plough, Inc. 

Provident Mutual Life Insurance Company of Phila- 
delphia 

The Psychological Corporation 

Public Service Corp. of N.J. 

Puget Sound Power & Light Co. 

Pullman Incorporated 

Radio Corporation of America 

Reading Company 

Ernst Reichl 

Remington Rand, Inc. 

Republic Steel Corporation 

Renter & Bragdon, Inc. 

Rexall Drug Inc. 

Riegel Paper Corporation 

Rochester Gas and Electric Corporation 

Rockwell Manufacturing Company 

The Ruberoid Co. 

San Diego Gas & Electric Co. 

Sanger Bros. 

Schenley Distillers Corporation 

Scott Paper Company 

Seaboard Air Line Railroad Company 

Seattle Gas Company 

Servel Inc. 

Sharp &; Dohme Incorporated 

Signode Steel Strapping Company 

Joachim Silbermann 

Simmons Company 

Skelly Oil Company 

Skilsaw, Inc. 

Weston Smith 

Snap-on Tools Corporation 

Socony- Vacuum Oil Comjaany Incorporated 

South Carolina Electric & Gas Company 

Southern Bell Telephone and Telegraph Company 
Incorporated 

Southern Natural Gas Company 

Southern Pacific Company 

Sprague Electric Company 

E. R. Squibb & Sons 

A. E. Staley Manufacturing Company 

Standard Oil Company of California 

Standard Oil Company (Indiana) 

Standard Oil Company (New Jersey) 

Sterling Drug Inc. 

Stromberg-Carlson 

The Studebaker Corporation 

Suburban Propane Gas Corporation 

Sun Oil Company 

Sunray Oil Corporation 

Sunshine Biscuits, Inc. 

Swift & Company 



VII 






ACKNOWLEDGMENTS 

Sylvania Electric Products Inc. United States Steel Corporation 

Tampa Electric Company United Wallpaper, Inc. 

The Texas Company Vanadium-Alloys Steel Co. 

Thatcher Glass Manufacturing Company, Inc. Vick Chemical Company 

Thompson Products, Inc. Walker & Downing 

Tide Water Associated Oil Company (Incorporated) The Walworth Company 

Tilo Roofing Company, Inc. West Virginia Pulp and Paper Company 

Trans-Canada Air Lines Westinghouse Air Brake Company 

Union Bag & Paper Corporation Westinghouse Electric Corporation 

Union Carbide and Carbon Corporation George Weston Limited 

Union Oil Company of California Wichita Union Stock Yards Co. 

United Aircraft Corporation Wisconsin Electric Power Company 

The United Electric Coal Companies Wisconsin Power and Light Company 

United-Rexall Drug, Inc. F. W. Woolworth Company 

United Specialties Company Yale 8c Towne Manufacturing Company 

United States Pipe & Foundry Company Yearbooks Publishing Company 

United States Rubber Company 






TABLE OF CONTENTS 



1. HOW TO PREPARE A MODERN ANNUAL REPORT 1 

2. PUBLIC MISCONCEPTIONS AFFECTING THE ANNUAL REPORT .... 14 

3. WHAT TO COVER IN THE ANNUAL REPORT 16 

4. SHOWING RESULTS AT A GLANCE 38 

5. REPORTING ON PRODUCTION 47 

6. REPORTING ON VOLUME OF BUSINESS— SALES 57 

7. REPORTING ON WHERE THE SALES DOLLAR WENT 71 

8. REPORTING ON EARNINGS AND DIVIDENDS 90 

9. REPORTING ON FINANCIAL CONDITION 103 

0. REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS . . 134 

11. REPORTING ON TAXES 153 

12. TELLING THE OWNERSHIP STORY 160 

13. REPORTING ON PRODUCTS. RESEARCH, ADVERTISING AND SELLING . . 166 

14. MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 176 

15. MAKING THE NARRATIVE READABLE 194 

16. LIVEN LNG UP THE ANNUAL REPORT 199 

17. SURVEYS OF OPINIONS ON ANNUAL REPORTS 213 

18. HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER .229 
T9. ANNUAL REPORTS TO EMPLOYEES 250 

20. WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT ... 278 

21. ATTRACTIVE PAGES FROM ANNUAL REPORTS 289 

INDEX 299 



IX 



HOW TO PREPARE 

A MODERN ANNUAL REPORT 



CHAPTER 1 



Annual reports have come a long way from the 
straight statistical presentations of financial state- 
ments that constituted a typical annual report in 
the thirties. Today, while some companies still 
issue stereotyped, uninspiring reports, more and 
more companies are sending out annual reports 
that invite attention with good artwork, good lay- 
out, good paper, good typography, good printing, 
and good reporting. The trend is not only to- 
ward more attractive and readable reports, but 
also toward giving frank and understandable ac- 
counts of the progress of the company and full in- 
formation about operating results and financial 
condition. 1 

The principal reason why the annual report has 
been modernized and humanized is: Top execu- 
tives have learned that it can serve several pur- 
poses besides the obligation to report to the stock- 
holders. It can: 



1. Build stockholder interest in the company. 

2. Create better understanding between the 
company and its employees. 

3. Improve industrial public relations. 

PROGRESS IN 

IMPROVING ANNUAL REPORTS 

The most complete information on the move- 
ment toward better annual reports comes from 
The Financial World. Since 1940 this magazine 
has conducted an annual survey of stockholder 
annual reports. Its vice-president and business 
editor, Weston Smith, originated the survey and 
has reported annually on the findings of the study. 
The survey is restricted to annual reports of 
corporations (excluding mutually owned finan- 
cial institutions [savings banks, insurance com- 
panies, and savings and loan institutions], trade 
associations, municipalities, etc.) with principal 

1 For influences leading to this trend, see page 176. For a 
brief history of the beginnings of annual reports, see Fortune, 
February, 1944. 



offices in the Western Hemisphere. Each year 
corporations submit their annual reports to The 
Financial World for review. Out of the mass of 
reports received, the magazine makes a selection 
for the yearly contest that is part of the survey. 
The selections are judged on the basis of edito- 
rial, financial and statistical content (60%) , and 
format, typography and illustrations (40%) . If 
a report achieves a total of 90% in these two divi- 
sions, it is classified as "Modern" and it qualifies 
for a "Merit Award." The balance of the reports 
are then studied to determine whether they clas- 
sify as "Improved." Each report is compared 
with its predecessor of ten years ago, and if it 
shows reasonable improvement, it is awarded 
"Honorable Mention." If a report has not 
changed materially, it is classified as "Unchanged" 
even though the report may have been modern 
for its time ten years ago. 

Annual reports that qualify for "merit awards" 
are classified according to industries and are then 
judged by an independent committee. The re- 
port judged "Best" in each of one hundred indus- 
trial classifications is awarded a bronze "Oscar of 
Industry" at the Financial World Annual Report 
Awards Dinner in October. Silver "Oscars of In- 
dustry" are given to the four corporations whose 
reports are judged "Best" in four broad classifica- 
tions: Manufacturing; Public Utilities; Transpor- 
tation; and Financial, including banks, insurance 
companies, and the like. One of these is judged 
"Best of All Industry" and awarded the golden 
trophy. The following annual reports have won 
gold Oscars: 1946, Missouri-Kansas-Texas Rail- 
road Company; 1945, Chesapeake & Ohio Railway 
Co.; 1944, Caterpillar Tractor Co.; 1943, Brown 
& Bigelow. 

The following tabulation and chart, repro- 
duced through the courtesy of Financial World, 
show the progress of improvements in annual re- 
ports since 1940. This progress may give the im- 

1 



HOW TO PREPARE A MODERN ANNUAL REPORT 



Modern 

Year No. % 

1940 16 6 

1941 46 10 

1942 162 21 

1943 254 25 

1944 372 30 

1945 581 38 

1946 758 43 



Improved 


Unchanged 


Total 


No. 


% 


No. 


% 


No. 


65 


16 


169 


78 


250 


92 


18 


362 


72 


500 


280 


37 


308 


42 


750 


361 


36 


385 


39 


1,000 


457 


37 


421 


33 


1,250 


524 


34 


395 


28 


1,500 


526 


30 


466 


27 


1,750 




Fig. 1 

pression that we have not far to go before all 
corporations will have made the transition from 
the old-style reporting to the new. That is not 
so. At least two out of three corporations are still 
sending their stockholders cut-and-dried certified 
financial statements as their annual reports. 
They are overlooking the opportunity to make an 
effective public relations instrument of the annual 
report. 

WHAT AN ATTRACTIVE 
REPORT CAN DO 

Corporations that have not changed the style of 
their annual reports to fit the times will, of course, 
measure the advantages of an attractive report 
against the cost and trouble of modernizing the 
old one. 

Here is what an attractive report can do if it is 
planned, designed, compiled, written, and distrib- 
uted to get the maximum benefit from it. It can: 

1. Make friends for the corporation among all 
the groups with whom the company has any 
contact — stockholders, prospective investors, 
employees, customers, creditors, suppliers, 
distributors, dealers, bankers, rating agencies, 

2 



investments advisers, newspaper editors, finan- 
cial writers. When it has made friends with 
individuals in these groups, it has made 
friends among the general public. 

2. Create a confidence in the corporation that 
will discourage hasty liquidation of its secu- 
rities, whatever the provocation. 

3. Add prestige to the corporation. 

4. Mark the management as progressive. 

5. Interest stockholders in promoting the com- 
pany's products and services. 

6. Create fresh investor interest in the company. 

7. Give the corporation an opportunity to tell 
what it has accomplished, what it is prepared 
to do, and what it stands for. 

ADVICE FROM COMPANIES THAT 
RECENTLY MODERNIZED REPORTS 

A survey was made recently among a group of 
companies that had just completed their first com- 
prehensive, illustrated, annual reports in order to 
get some hints that might help others with their 
first efforts. From the findings, the following 
conclusions can be drawn: 

1 . The ease with which the first modern report 
is gotten out depends upon such factors as: 

(a) The extent of the change. Several re- 
spondents recommended that the change 
should not be too drastic the first year. 
A better plan, they say, is to make the 
changes over a period of years. 

(b) Whether the company uses an outside 
agency, such as a public relations firm or 
specialized advertising agency, and how 
much of the job it turns over to such an 
agency. See page 3. 

(c) How much time has been allowed for 
getting out the report. It must be 
planned well in advance of the publica- 
tion date. 

(d) The experience of the people assigned 
to work on the report. One respondent, 
who used no outside agency, advised that 
some individual, preferably one with 
financial and editorial experience, 
should be assigned to work with the top 
financial officer Avho is responsible for 
the report. This individual should be 
given specific and full authority for the 
project and should be relieved of other 
major duties while he is working on it. 



HOW TO PREPARE A MODERN ANNUAL REPORT 



Loose or informal assignments among 
several groups on a part-time basis may 
lead to irreparable last-minute over- 
sights. 

2. It may take from three to ten times as long to 
prepare a comprehensive report as it does a 
simple one, depending upon the extent of the 
change. One company said it took about 
thirty additional days, of which fifteen were 
due to the use of color. Color printing re- 
quired submission of final copy some fifteen 
days in advance of the mailing date, whereas 
black and white printing had required only 
three or four days. 

3. The work should be started well in advance 
and a time schedule should be set up. This 
subject is discussed fully at page 5. 

4. Professional talent for format, layout and art 
work is indispensable. 

WAYS TO PREPARE 
A MODERN REPORT 

The best annual reports are gotten out in one of 
the following ways: 

1. The company does the whole job itself, ex- 
cept for the art work and printing. 

2. The company employs the services of an in- 
dependent firm that specializes in producing 
annual reports and other public relations lit- 
erature. The firm may or may not be a 
printer. 

3. The company employs a printer who fur- 
nishes a specialist in annual reports (one of 
the printer's regular employees) to help with 
production. 

4. The company prepares all of the material for 
the report and then employs an expert typo- 
graphic designer to put it into attractive form. 
This expert furnishes the dummy, selects the 
type faces, suggests the treatment of the cover, 
prepares the charts, graphs and illustrations, 
and approves the engravings, composition 
and art work from beginning to end. The 
actual printing is done by a printer selected 
by the company. 

WHO PREPARES 

THE ANNUAL REPORT 

A corporate annual report that has been prepared 
by the company itself usually represents the com- 



bined efforts of all the officers of the corporation, 
the directors, the department heads, the account- 
ing department, the legal counsel and bankers for 
the company. In many cases, the principal re- 
sponsibility rests with a senior executive whose of- 
fice acts as a clearing house for the collection of 
data to go into the report. It is from this office 
that the various drafts and proofs of the report are 
distributed. Information from Incorporations 
on this point showed the following officers to be 
in charge of the annual report: 

Percentage of 
Total Replies 

Treasurer 15 

Secretary 1 1 

President 10 

Controller 10 

Director of Public Relations 4 
Others (including Chairman of Board, 

Assistant Treasurer, Assistant to 

President, Vice-president) 8 

Joint group 42 

In companies whose elaborate reports make use 
of color, pictorial covers, charts, diagrams, photo- 
graphs, drawings and maps, the advertising de- 
partment or the director of public relations plays 
an important part. If the report is basically an 
interpretation of the financial statements pre- 
sented, the controller, treasurer or any other ad- 
ministrative officer who is closely associated with 
the accounting department is likely to have 
charge of it. 

Invariably, the chief accounting officer and in- 
dependent auditors are responsible for the prep- 
aration of the financial statements. Other statis- 
tical data are usually prepared by the statistical 
department, if there is one, or by the accounting 
department. 

Data on products are generally furnished by the 
sales department, the advertising department, or 
the public relations officer. 

When the report contains a section for each of 
the company's divisions, each department head is 
responsible for preparing pertinent information. 
Even if divisional information is included as part 
of the president's letter, the same is true. 

PREPARATION BY 
INDEPENDENT AGENCY 

The independent agency that specializes in pro- 
ducing annual reports may be an individual who 
undertakes to inspect personnel, properties, ac- 



HOW TO PREPARE A MODERN ANNUAL REPORT 



tivities and records, and to write a report on the 
corporation. 2 Or it may comprise a staff of spe- 
cialists who not only write the text of the report 
but plan and illustrate the booklet as well. 

A few larger organizations specializing in this 
field are equipped to plan and produce annual re- 
ports in their entirety. Such integrated concerns 
frequently write a report, lay it out, and print and 
distribute thousands of copies. They are pre- 
pared to perform any or all of the operations of 
publishing a corporation report. A corporation 
may decide, for example, to have a member of its 
own staff write the message, and to use the inde- 
pendent agency to plan, illustrate and print the 
report. 

ADVANTAGES OF 
INDEPENDENT AGENCY 

The advantages of having an annual report pre- 
pared by an outside agency or annual report coun- 
selor are: 

1. An outsider may approach the report from a 
perspective and avoid too much emphasis on 
detail. He is likely to prepare a report that 
reflects the philosophy of the business. To 
a corporation executive, his company's past 
history, present accomplishments and future 
plans are his world, his yesterday, today, and 
tomorrow. Having given his years and his 
energies, he does not think of his business ob- 
jectively. He cannot write about it from a 
detached viewpoint. Like the company ex- 
ecutive, the outside reader to whom the re- 
port is addressed lives in his own — but differ- 
ent — world and is interested in his particular 
set of problems, dreams and plans. Almost 
invariably, the devoted employee or executive 
will view his company from the standpoint 
of someone inside. But unless the report is 
written from the reader's viewpoint — in this 
case, the outside viewpoint — it may not be in- 
teresting to him and he may not read it. 

2. The report is likely to be attractive in appear- 
ance. Artists skilled in design and illustra- 
tion, and production men skilled in the use of 
type and the application of reproductive proc- 



2 The independent agencies described here do not refer to cer- 
tain firms that are employed by corporations as public relations 
counsel. These firms help the appropriate corporate officers 
prepare and get out their annual reports. The work, however, 
is part of the regular operations of the agencies with their 
clients. 

4 



esses, can collaborate in preparing the report. 
The organization devoted to the preparation 
of annual reports will have staff artists or will 
know how to select free-lance illustrators who 
can prepare charts and pictures suitable to the 
subject of the report. In addition to their 
thorough familiarity with every element of 
design and execution, these specialists can 
deftly coordinate each key factor to achieve 
the desired total effect. A properly designed 
report will be pleasing to look at and easy to 
read. Treatment of text, illustration and 
decoration will strengthen the continuity of 
interest from page to page. Important 
points will be highlighted to catch the eye. 
The appearance of the entire report will not 
only invite reading but will also suggest the 
dominant theme of the work. 
Much time of corporate officers and employ- 
ees may be saved. Since outside experts 
know from long experience what data to look 
for, where to find it and how to handle it, they 
can often complete the report in less time 
than it would take an officer of the corpora- 
tion. Speed is usually important, since the 
report must be distributed by a certain date. 
The agency knows how to coordinate the 
component parts so they all reach a produc- 
tion point on time to expedite the printing. 
Usually the financial statements do not come 
through until the last minute, but the expe- 
rienced agency knows how to have everything 
ready to go to press when the statements ar- 
rive. 

Printing costs are kept down when the plan- 
ning is done by outside counsel. The saving 
is made through elimination of overtime. 
The language is likely to be good because the 
copy is prepared by experienced writers. 
The agency can, because of its experience 
with many companies' reports, make sugges- 
tions that would not occur to others. 
The agency understands the cost of producing 
an annual report, and it can inform the com- 
pany what to expect for an established budget. 
A great deal of time is thus saved in obtaining 
bids on art, engraving and printing. The 
same understanding can help to keep down 
the cost of "extras." 

The agency is usually prepared to give ad- 
vice as to economies in the mailing of the re- 
port. 



HOW TO PREPARE A MODERN ANNUAL REPORT 



COST OF 
OUTSIDE AGENCY 

Since the cost of preparing a report, whether by 
the corporation or by an outside agency, depends 
on many variables, it is difficult to make a general 
comparison between the two methods. If a cor- 
poration publishes an attractive, effective annual 
report that will achieve maximum results, it has 
to engage — or assign to the task — competent re- 
search workers, writers, artists and production 
men. The cost of organizing and compensating 
such a staff to produce a single report is fre- 
quently far greater than the cost of engaging a 
permanent organization that continually prepares 
annual reports for several clients. On the other 
hand, a large corporation that is accustomed to 
handling and preparing its own printed material 
may find it more economical to produce its own 
report. 

Similarly, it is not easy to compare costs of time 
spent by top executives on a report prepared 
within the company with costs of their time if 
an outside agency is employed. In either event, 
considerable time must be devoted to discussion, 
review and criticism of content. If the members 
of the outside organization are capable, they will 
plan and execute their work so as to make mini- 
mum demands on the time of executives. 



PROCEDURE WHEN 

OUTSIDE ORGANIZATION IS USED 

The corporation's part in the preparation of an 
annual report by an outside organization is shown 
in the following procedure: 

1. The company assigns one of its executive as- 
sistants to work with the annual report coun- 
selor in collecting information for the report. 
In some companies, the president himself per- 
forms this function. 

2. When the representative of the outside organ- 
ization visits the company he examines the 
plant and facilities and gathers all the infor- 
mation he needs from the various officials of 
the company. Or the top official may furnish 
the agency with a memorandum covering the 
information required for the report. Some 
companies make up the memorandum from 
the year's minutes of meetings of directors 
and committees, house organs, press releases 
and newspaper clippings. The memoran- 



dum covers such matters as earnings, increases 
or decreases in capital stock, dividends, acqui- 
sitions of companies, research, employee ben- 
efits — in fact, any of the subjects enumerated 
on page 18. 

3. The annual report counselor submits a 
dummy layout to the company and makes sug- 
gestions as to format, size, use of color, photo- 
graphs, and charts, subjects to be covered, and 
distribution of the report. 

4. Conferences are held between the counselors 
and the company officials at which: 

(a) Matters of policy are discussed and de- 
cided. 

(b) The proposed outline is reviewed and 
changes made. 

(c) Size, style, format and cost are fixed. 

5. The company furnishes all the statistical data 
required by the counselor. Photographs are 
taken. Work is started on the charts and il- 
lustrations. 

6. The first draft of the text is written to fit the 
dummy furnished by the counselor. It is re- 
viewed and put into final form. 

7. The final copy is approved by the proper cor- 
porate officers, the board of directors, legal 
counsel, and the auditors. 

8. The report is printed. 

9. Copies of the report are delivered according 
to instructions. The major part may be de- 
livered to the bankers or transfer agent for 
distribution to the stockholders. 

One or more representatives of the outside or- 
ganization usually supervise and coordinate each 
of the steps in the preparation of the report. As 
in the case of a report prepared by the company 
itself, a schedule of when each part of the work is 
to be completed is generally made up by the out- 
side organization. 

SCHEDULE FOR PREPARATION 

Most annual reports must be released by a certain 
date determined by the by-laws of the company, 
requirements of the exchange on which the stock 
is listed, or the regulations of the Securities and 
Exchange Commission. The usual provision is 
that the report must be in the hands of the stock- 
holders a certain number of days before their 
annual meeting. Most companies hold their an- 
nual meeting in March or April, which leaves 
comparatively little time for the accountants to 



HOW TO PREPARE A MODERN ANNUAL REPORT 



complete the work of closing the books and get- 
ting out the financial statements. Thus, the 
usual experience is that there is a great rush be- 
tween the receipt of the financial figures and the 
final mailing date. 

The first protection against last-minute rush is 
the preparation of a master schedule that fixes the 
date for each step in the preparation of the re- 
port. Individual subschedules may be prepared 
for separate departments if necessary. The best 
practice is to prepare the time-table by working 
backward from the mailing date and estimating 
the minimum time required for each step. In- 
variably, factors beyond the control of those who 
make the time-table will upset it; the schedule 
usually has to be revised once or twice during the 
preparation of the report. It is most important, 
therefore, to start early. 

In the majority of companies that mail reports 
based on calendar-year operations, active plan- 
ning begins early in December; in some com- 
panies, the active work begins in late September 
or early October. If a substantial change in style 
is contemplated, work must be started about six 
months earlier than usual. Some companies sug- 
gest beginning a year in advance if changing from 
a conservative to a full-blown modernized report. 

A schedule serves the following purposes in ad- 
dition to assuring publication on time: 



1. 

9 



4. 



Prevents the omission of any step. 
Assures steady application to the job. 
Impresses those who are responsible for gath- 
ering material with the necessity of keeping 
to the schedule. 

Permits the person responsible for the report 
to show superior officers the status of the re- 
port at any moment. 
Furnishes a guide for the following year. 



ILLUSTRATION OF SCHEDULE 

The schedule shown on pages 7 and 8 is used 
by a large company that prints 80,000 copies of 
its annual report. The report in this instance 
contains twenty-four pages, made up of eight 
pages of text, two pages of statistical data, the au- 
ditor's report, fourteen pages of financial state- 
ments and notes, plus a directors' page on the 
inside cover. The responsibility for the prepara- 
tion of the report is in the hands of the assistant 
secretary who works under the supervision of the 
secretary. Although this company follows the 



practice of having the report set in type in New 
York City, where the officers are located, and of 
having the printing and mailing done in another 
city, the schedule is readily adaptable to com- 
panies that do not follow this procedure. The 
schedule makes provision not only for the dates 
when the various drafts are to be submitted to the 
officers and heads of departments and when the 
report is to be finally mailed, but provides as well 
for the ordering of paper, the writing of news- 
paper releases, the mailing of preliminary copies, 
and other matters. 

The schedule of procedure is kept up to date 
as the work progresses. The date when an item 
has been completed is entered in the 'Actual 
Date" column. The "Reference" column is used 
for notation of who did the work and for re- 
minder notes and remarks. These remarks are 
especially useful when the following year's report 
is prepared, for the previous schedule is the pat- 
tern for making up the new one. The remarks 
also serve as a guide for correction in future re- 
ports of any errors made in the preparation of the 
current report. For example, if envelopes had 
been ordered incorrectly, a note would be made 
in the "Reference" column; it would warn against 
a repetition of the same error the following year. 

EXAMPLE OF 

A SIMPLE SCHEDULE 

A company that prepares its schedule about sixty 
days in advance of the required mailing date 
(April 15), suggests a time-table such as the fol- 
lowing: 

January 15: Request basic material from all 
major department heads. 

January 25: Begin rough draft of text, after 
deciding upon the general theme 
and nature of the message. 

February 1 : Prepare statistical and other 
chart material. 

February 15: Submit draft of text for execu- 
tive review. 

February 20: Transmit charts, illustrations, 
etc., for preparation of engrav- 
ings and lay-out. 

March 1 : Transmit approved text and 

public accountants' report to 
printer. 

March 15: Deliver reports for addressing 
and mailing. 



HOW TO PREPARE A MODERN ANNUAL REPORT 



SCHEDULE OF PROCEDURE — 19— ANNUAL REPORT 
Schedule Actual 

Date Date Refer 

Dec. 8 Ascertain number of stockholders of all classes to determine paper requirements and print 
order basis. 
Check 19 — report quantities on hand in various offices. 

Dec. 9 Advise purchases department of quantities required. 

[Ed. This advice will be followed by a definitive memo. See Jan. 5.] 

Dec. 15 Review notes and suggestions for report gathered during the year. Accumulate source 
materials. 

Dec. 16 Review minute books, house organ, news releases, etc. for year's activities. 

[Ed. This step involves a selection of material by the assistant secretary that should be con- 
sidered for inclusion in the report.] 

Dec. 22 Mark up previous year's report with notes and current year's data. 

Request various department heads to submit suggestions in regard to subjects to be covered 
by the report. 

Review the working papers of the previous year for suggestions. 

[Ed. The file of working papers of the previous year contains the original drafts, the com- 
ments and suggestions of each person who reviewed them, and the source material. The 
notes on these papers are valuable as a guide in the preparation of the following year's 
report. The first drafts with comments are retained 2 years,- the source material is retained 
5 or 6 years or indefinitely. A public utility would be guided by regulations on the sub- 
ject of destruction of records.] 

Dec. 29 Prepare preliminary dummy for guide. 

Dec. 30 Write first typewritten draft (5 copies). Review with senior officer in charge. 

[Ed. The comments, suggestions, corrections, etc. on the first draft will be incorporated in 
the second draft scheduled for Jan. 8.] 

Jan. 5 Determine style, color and stock for envelopes, covers and inside pages. 

Advise purchasing department of print order for all reports. 

[Ed. This memo to the purchasing department tells the amount of reports to be ordered 
(verifies or alters preliminary instructions of Dec. 9). It also gives instructions as to prelimi- 
nary supply copies, that is, where and how they are to be delivered. For example, the 
copies for the press, and for various officers and offices will be included in the preliminary 
supply. The memo also gives delivery instructions for the balance of the reports, and 
specific quantity and delivery of envelopes.] 

Jan. 8 Write second typewritten draft (7 copies for various officers). 

[Ed. This draft incorporates the suggestions, revisions, etc. made on the first draft and is 
distributed on a wider basis than the first draft.] 

Jan. 9 Obtain samples of type style and set-up, and samples of cover. 

Jan. 12 Request preliminary statistical data from statistical department; data is to be marked on pre- 

vious year's report. 

Request legal parts of report from counsel,- for example, secure data on status of litigation 
and proceedings. 

Order envelopes,- direct their deliveries to transfer agents for addressing; then to mailing. 
Send cover drawing to engraver. 

Jan. 13 Obtain from printers the estimates based on preliminary dummy. 

[Ed. Printer is selected on basis of bids and confidence in printer's work.] 

Jan. 20 Make the third and final draft. Prepare "dittoed'' cooies required for distribution. 

[Ed. This draft is sent to the Chairman of the Board, President, Vice-Presidents, Secretary, 
Controller, Counsel, principal operating men in the division offices, chief engineer, and 
several of the staff.] 

Jan. 21 Receive marked-up copy of last year's report from statistical department. 

Approve cover proofs, envelope corner card, style of type and page layout. 

Jan. 22 Check directors for titles, etc. for directors' page. 

Jan. 23 Check with assistant controller for accounting data and sections of reports. 

Feb. 2 Send routine pages, such as directors' page, statistical page, to printer. 

Arrange for printer to submit "day-bills'' on each revision. 

[Ed. In order to have some basis on which to judge the reasonableness of the charges for 
author's corrections, and as a reminder to all those who are involved in preparing the re- 
port that corrections are costly and delays mean overtime expense, daily memos of costs of 
corrections (and overtime, if any) are received. This plan has proved beneficial in keeping 
costs of preparing the report at a minimum and in obtaining better control of production.] 



HOW TO PREPARE A MODERN ANNUAL REPORT 



Schedule 

Date 
Feb. 10 



Actual 
Date 



Feb. 17 



Feb. 18 

Feb. 24 

Feb. 25 
Feb. 26 

Feb. 27 

Mar. 2 



Mar. 3 

Mar. 4 
Mar. 5 

Mar. 6 

Mar. 9 

Mar. 10 

Mar. 11 

Mar. 16 

Mar. 17 
Mar. 19 

Mar. 24 
Mar. 30 

Apr. 20 



SCHEDULE OF PROCEDURE — 19— ANNUAL REPORT (Continued) 



Keep printer's marked-up copies and proofs for checking day-bills. 
Instruct transfer agents on stencilling envelopes and eliminating duplicates. 
[Ed. The elimination of duplicates to stockholders having more than one kind of stock is a 
goodwill gesture as well as a money-saving step. Stockholders receiving more than one 
copy are likely to write in suggesting that the company save the cost of sending out dupli- 
cates.) 

Obtain final financial data and sections from the accounting department. 

Deliver envelopes to transfer agents for stencilling. 

Send corrected third draft and financial pages to printer for first proofs. 

[Ed. The printer is instructed to supply galley proofs on page-size sheets, since they are 

easier to handle, and to set up completely the first page. This permits those who are to 

review the proofs to get the general effect. If a directors' meeting is to be held before 

the proofs can be expected from the printer, 25 copies of the latest draft are prepared on 

the Ditto machine for directors' use. If the directors' meeting falls after proofs are expected, 

a sufficient number of printer's proofs will be requested to supply each director with a 

copy, in addition to the number necessary for officers and others concerned.] 

Distribute proofs, after placing initials of recipients on the copies. 

[Ed. By initialing the proofs there is never any question as to who returned them and 

whose comments are noted.] 

Make preliminary dummy for style, paging, etc. 

Obtain revisions from all executives and send marked proofs to printer for second proofs. 
Determine number of copies wanted. 

Provide 20 copies of complete report (in proofs or Ditto) for directors' meeting. 

Obtain directors' approval of preliminary report form. 
Distribute second proofs in same manner as first on Feb. 18. 

Confirm to purchasing agent number of pages in report and revise or confirm distribution 
order. 

Ship stencilled envelopes to center from which reports are to be mailed. 
Review procedure schedule for possible revisions. 

[Ed. At this point the end of the work is in sight and the schedule is reviewed to see 
whether the reports can be completed before the scheduled mailing date. If that is pos- 
sible, several people may have to be advised of the change in schedule.] 

Revise second proofs, make new dummy for paging, and send to printer for third proofs 
(page-proofs). 

Distribute third proofs to executives. 

Send corrected pages to printer for fourth proofs, getting revises only on pages that show 
corrections. 

Record date. 

Approve lock-up proofs and send lock-ups to foundry for one set of steel-faced plates. 

Send plates to printer. 

Stencil report envelopes (transfer agent) for additional stockholders entered on books be- 
tween first stencilling date and record date. Ship to mailing center. 

Check proofs of plates before make-ready. 

Check press proofs. 

[Ed. Responsibility for these two steps is frequently placed entirely with the printer.] 

Request printer to retain all type until reports are printed and to hold certain type for pos- 
sible use in next year's report: cover, officers, statistics, and other routine pages. 
Prepare news releases to accompany report copies. 

Receive special supply of reports for news releases, etc. Send to newspapers for release 
simultaneously with mailing to stockholders. 

Suggest copy for report summary in house organ, April issue. Start mailing to stockholders. 

Deliver preliminary supply to all offices. 

Finish mailing to stockholders. This must be completed by Mar. 31 and 10 days before 

annual meeting. 

Deliver complete supply to all offices. 

Obtain affidavits of addressing envelopes (transfer agents) and of enclosing and mailing 
(from mailing center). 

Compile list of suggestions for improvements, etc. for next year's report. 



Reference 



HOW TO PREPARE A MODERN ANNUAL REPORT 



GATHERING MATERIAL 

During the first stages of preparation, the execu- 
tive in charge will usually review the sources of 
material, using the following methods: 

1. Examine minutes of stockholders', directors' 
and committees' meetings held during the 
year. 

2. Gather the reports filed with regulatory 
bodies. 

3. Review the working papers of the previous 
year's reports for memos, notes and remind- 
ers. 

4. Examine the notes and other data assembled 
in the annual report file for the year. 

5. Circularize key executives for their ideas. 

6. Check the last year's report to see what mat- 
ters were reported upon as pending, for ex- 
ample, litigation, loans, planned construc- 
tion. 

7. Select from the file of publicity releases any 
developments important enough to be in- 
cluded in the annual report. 

CIRCULARIZING 
KEY EXECUTIVES 

There are various methods for getting key execu- 
tives' ideas on what should be included in the 
report, before the first draft is made. The Ru- 
beroid Co. prepares a long questionnaire early 
in November; it is designed to sret information, 
other than financial, that might be of interest 
or value to stockholders or employees or both. 
Such items as research, results, new products, 
plant improvements, distribution of the "sales 
dollar," tonnage produced, details of tax pay- 
ments, employment, wages, employee relations, 
important changes in personnel, general trade 
conditions, and the general outlook, are included 
in the questionnaire. Sections of this question- 
naire are sent at once to the department heads 
from whom the various kinds of information must 
be obtained so that they may have ample notice 
of what is desired and can arrange to have it ready 
as soon as practical after the close of the year. 

In other companies, this information is ob- 
tained from discussions with officers and depart- 
ment heads. 

One corporation, which sends a letter to sales 
managers, the director of research, and others for 
information to be used in preparing the report, 



includes a two-part sheet. On one half is a tab- 
ulation of the contents of the previous year's re- 
port. On the other half is a tabulation of the 
proposed contents of the current report. The 
letter calls for suggestions, revisions of text, and 
new material. 

Where the contents of the report are deter- 
mined principally by the officer in charge of the 
report, he may send out a request to other officers 
and department heads to assemble the data re- 
quired. 

DUMMIES, DISCUSSIONS AND BIDS 

In many companies the person principally re- 
sponsible for getting out the report prepares, or 
has prepared, a preliminary dummy for guidance 
in the discussion of the annual report. The 
dummy is a time saver; it enables those who sit in 
on the discussion to visualize the complete re- 
port; it gives them something concrete with which 
to get down to work. The dummy forms the 
basis for settling such questions as: 

1 . Should the report be strictly a text treatment? 

2. Should occasional pen and ink sketches be in- 
cluded? 

3. Should photographs be used? 

4. Should graphs and charts be included? 

5. How large should the report be? 

6. Should it have a separate cover? 

7. Should color be used? 

8. Are economies necessary or advisable? 

9. What innovations should be introduced if the 
report is to be modernized? 

In discussing these questions, it may be helpful to 
call in the heads of the advertising and purchas- 
ing departments, as well as the printer. 

After the decisions have been made, another 
dummy is prepared on the basis of which printers' 
estimates can be obtained. 

In some companies, these questions are worked 
out before a dummy is prepared. When deci- 
sions have been made, several advertising agencies 
are invited to submit a dummy based upon the 
suggestions furnished them. After a dummy has 
been selected, requests for bids on printing are 
sent out. 

DRAFTING THE REPORT 

With the material from various sources assem- 
bled, and the format decided upon, the first draft 



HOW TO PREPARE A MODERN ANNUAL REPORT 



of the annual report can be prepared. This draft 
is usually submitted to the principal officers and 
department heads who are responsible for the ac- 
curacy of statements concerning the activities un- 
der their supervision. The accounting depart- 
ment generally checks all figures included in the 
text. In some companies, this draft is sent to the 
executive committee for review. 

After corrections and suggestions have been ob- 
tained, a revised draft is prepared. This second 
draft is usually distributed on a wider basis than 
the first. Thus, if the first draft went to the of- 
ficers and department heads, the second may go, 
in addition, to the directors and the general coun- 
sel. The third draft, incorporating the notes and 
comments of those who reviewed the second draft, 
is then drawn up. In most cases, this is the final 
copy, which is sent to the printer, though it is not 
unusual to find that lour drafts are necessary. 

Every officer, department head and legal coun- 
sel, and anyone who has any responsibility in con- 
nection with getting out the annual report should 
have an opportunity to see the final draft before 
it goes to press. This may be the copy that is sent 
to members of the board of directors for approval. 
Frequently, it is prepared in mimeograph form 
because of the large number of copies that are 
required. Since the art work — charts, photo- 
graphs, illustrations, cover design — is usually 
completed by the time the final draft is ready, 
copies of the illustrations may accompany it. 

HANDLING PROOFS 

The printer submits a sufficient number of 
copies of galley proofs to permit everyone who 
is to see the proofs to have a set. It is ex- 
tremely important that any changes to be made 
are made on the galleys, for changes on page 
proofs are considerably more troublesome and ex- 
pensive. Whoever checks the accuracy of the fig- 
ures should see that the text ties in with the finan- 
cial statements that have been approved by the 
public accountants. On the page proofs, all fig- 
ures should be checked carefully. In one com- 
pany, the initials of the checker must be placed 
after all figures. 

If the report is elaborate, with color work and 
photographs, a "blue print" proof will be helpful. 
This proof shows details of size exactly, it indi- 
cates bleeds clearly, and by means of appropriate 
notes shows color requirements and other vital 
information. Corrections can be noted on the 

10 



"blue prints," and the printer notified to submit 
final proof in color. 

The report in final form must usually have the 
approval of counsel and of the board of directors. 
Others, such as the executive committee or partic- 
ular officers, may also be required to approve the 
final report, depending upon the practice in the 
particular company. 

MAKING CORRECTIONS 

In spite of excessive care, an error or omission 
may be discovered that must be corrected before 
the report is mailed. An erratum slip can be in- 
serted at the proper place. Usually there is not 
sufficient time — and there are too many copies — 
to correct the error by pasting a correction slip 
over it. 

Occasionally an annual report will contain in- 
formation on a matter that is out of date by the 
time the report is ready for mailing, or will fail 
to report on an important new development. If 
the subject is vital enough, a multigraphed let- 
ter can be prepared and mailed with the report. 
This method has, for instance, been used to cover 
sudden strikes. 

MAILING THE REPORT 

It is always wise to determine in advance what the 
mailing costs of the annual report will be. For 
this purpose, it is advisable to use a dummy, cut 
to accurate size out of the paper that will actually 
be used and including the container and any in- 
serts. A slight change may reduce the postage. 
The following postal information will be helpful: 

Catalogue or book rate. Under the post office 
regulations, if printed catalogues and books have 
twenty-four or more pages, including the cover 
(at least twenty-two of these pages must be 
printed), and do not weigh more than eight 
ounces, they may be mailed at a special rate: one 
cent for each two ounces or fraction thereof on 
each individually addressed piece or package. If 
the printed matter has fewer than twenty-four 
pages, the rate is one and one-half cents for each 
two ounces. 

Under this regulation, the sender saves the ex- 
pense of sorting envelopes and tying them into 
bundles. ,Qn the other hand, this class of mail 
receives least attention in the post office and is 
generally slowest in delivery. Furthermore, this 



HOW TO PREPARE A MODERN ANNUAL REPORT 



regulation does not permit the enclosure of a no- 
tice of annual meeting, proxy and proxy state- 
ment. 

Sec. 562 P.L.&R. Many companies prefer to 
use the bulk mailing privileges under Sec. 562 of 
the Postal Laws and Regulations. Mail sent un- 
der Sec. 562 is handled expeditiously by the post 
office. It usually moves right after first-class and 
newspaper mail. A piece may be mailed under 
this section regardless of the number of pages, as 
lona; as the weight is under eight ounces. 

If the booklet has twenty-four or more pages, 
the rate is eight cents a pound; if it has fewer 
than twenty-four pages, the rate is twelve cents a 
pound. The minimum postage is one cent per 
mailing piece. 

The postage must be prepaid and supplied in 
the form of printed indicia, metered stamps or 
precancelled stamps. Uncancelled stamps must 
not be used on bulk third-class mail. 

Under Sec. 562, a permit must be obtained 
from the postmaster, and the sender must sort the 
mail by city and state, and tie and label each bun- 
dle. The sender must also prepare a "Statement 
of Mailing" (supplied by the Postal Department) 
and submit it with each mailing;. Even when the 
labor expense for these operations is added, how- 
ever, experience shows that the total cost of mail- 
ing under Sec. 562 will still be less than one and 
one-half cents for each 2 ounces. 

To save time when using Sec. 562, the sender 
can begin to sort the envelopes before the print- 
ing of the report has been finished. It is as easy 
to stuff envelopes after they have been sorted as 
before. This procedure will allow more time for 
printing, for auditing the financial statements, 
and for other preparatory work. 

Metered mail; precancelled stamps. Metered 
mail, whether first- or third-class, saves time in the 
post office. Precanceled stamps can be used on 
third-class mail, but recipients generally regard 
mail less favorably when it bears this kind of post- 



Mailing by outside organization. A corpora- 
tion may have its own mailing department send 
out the report, or it can engage an experienced 
mailing house. With its specialized equipment 
and trained personnel, the outside mailing house 
may do a faster, better job. 



IDEAS FOR 

SAVING TIME AND CUTTING COSTS 

A survey of methods used in the preparation of 
annual reports has disclosed the following ways in 
which the work can be expedited and costs kept 
to a minimum: 

Writing the report 

1. Keep a year-around file for memos and other 
data that will expedite the work of the fol- 
lowing year. 

2. Start early and prepare a schedule. See 
page 5. 

3. Note on the schedule any points that will 
help in the following year's preparation of 
the report. 

4. Keep a master or desk copy of the annual re- 
port on hand and note in it any points, sug- 
gestions, and comments that arise during the 
year so that they will not be overlooked in 
preparing the next report. 

5. Don't wait for books to be closed to pre- 
pare comments on financial statements and 
charts and graphs. Make drafts of the re- 
ports on the basis of estimates and have fig- 
ures checked carefully by the accounting de- 
partment when the financial statements are 
finally completed. Prepare the charts and 
graphs up to the year for which the report is 
being, made, so that when the data on that 
year become available it is a simple matter to 
make additions. 

6. Make copies of the first draft on the dupli- 
cating machine. 

7. Initial each copy of the various drafts and 
proofs with the name of the person to whom 
it is sent for approval. When the drafts are 
returned, there will be no question as to 
whose comments are noted and who returned 
the copy. 

Physical qualities 

8. Select a shape and size of paper that can be 
cut without waste from standard sizes used by 
printers. 

9. In determining the number of pages in the 
report, think in terms of four- or eight-page 
units in order to avoid blank pages and to 
keep costs down. Thus, the report should 
be 4, 8, 12, 16, 20, 24, 28, or 32 pages long. 

11 



HOW TO PREPARE A MODERN ANNUAL REPORT 



10. Consider publishing a condensed, popular 
edition, if the complete report must be large, 
statistical, and expensive. This edition may 
have a self cover and may be prepared to fit 
into a No. 10 commercial envelope. 



Printer relations 



11. 
12. 



13. 



14. 



15. 



16. 



17. 



18. 
12 



Instruct the printer to use page-sized galleys; 
they are easier to handle. 
Ask the printer to set the first page of the 
text of the report. This will give those who 
are going over the proofs an opportunity to 
see how the report will look, which makes 
for more intelligent criticism. 
Ask the printer to furnish a daily memo of 
costs added because of corrections and over- 
time. This will afford a basis on which to 
judge the reasonableness of the charges for 
author's corrections. It wilL also remind all 
those who are involved in preparing the re- 
port that corrections are costly and that de- 
lays may mean overtime expense. 
Save type or plates from those parts of prior 
reports that can be used with minor modi- 
fications, such as statistical matter and direc- 
tors' page. 

Supply the printer with copy for the finan- 
cial statements by direct insertions of revised 
figures on a copy of the prior year's report, in 
order to facilitate the complex alignments 
and captions. 

Save time by sending as much of the material 
to the printer as is ready before the text is 
completed. Parts that can be set up early 
include: (a) art work for covers; (b) charts; 
(c) display material; (d) auditor's report; 
(e) statistical tables; (f) directory; (g) lists 
of products. 

If it appears that the preparation of the 
financial statements is going to hold up the 
report, arrange the material so that the front 
and back forms can be prepared and printed 
in advance. The printer can then concen- 
trate the last moment on the inside pages 
that contain the financial statements. This 
is unconventional and ordinarily not a satis- 
factory way to produce any publication, but, 
in a pinch, it may allow the company to over- 
come obstacles that otherwise seem insur- 
mountable. 
If the report as a whole is delayed for reasons 



19. 



beyond the control of anyone, it may be nec- 
essary to send out the financial statements 
first in a sepaiate mailing. The regular full- 
sized report, in which the financial state- 
ments are included, is sent out later. 
Make special runs of maps, diagrams, and 
similar pages that may be useful for publicity 
and other purposes. 



Mailing the report 

20. Consider what economies can be effected by 
mailing the notice of annual meeting, proxy 
and proxy statement with the annual report. 

21. Consider the postage savings that can be ef- 
fected by planning a book of 24 pages or 
more. See page 10. 

POPULARIZED AND 
CONDENSED EDITIONS 

Some railroads prepare two versions of their an- 
nual reports, one for the general reader and an- 
other for those who are interested in statistical and 
detailed financial information. In many cases, 
this procedure is economical because most of the 
stockholders are not interested in the statistical 
material. The Pennsylvania Railroad, for ex- 
ample, issues a report to its stockholders that is 
easily understood but does not contain all of the 
statistics that are available. A separate statistical 
statement containing information of interest to in- 
vestment bankers and others making detailed 
studies of the company's affairs is also prepared. 
Stockholders are invited to send for the statistical 
statement. 

The Erie Railroad many years ago introduced 
two editions of its report — the popular and the 
complete. The popular edition contains photo- 
graphs, charts, maps, comments on the year's oper- 
ations, and a comparative income statement and 
comparative balance sheet. It is mailed to each 
stockholder of record, while the complete report, 
containing full statistical data, is mailed to inter- 
ested security holders and others on request. 

The Provident Mutual Life Insurance Com- 
pany of Philadelphia, Pa., adopted the plan of is- 
suing a condensed four-page report during the war 
years as a means of conserving paper. A return 
card was sent with the brief report for use in re- 
questing a complete report. After the war, the 
company continued this practice, explaining its 
action with this interesting comment: 



HOW TO PREPARE A MODERN ANNUAL REPORT 



The plan [to issue a condensed report] appeared to 
meet with the approval of many policy owners, and in 
order to learn if such was the case generally, we asked 
last year for an expression of opinion. Over 33,000 
policy owners took the trouble to return the reply 
card, and we thank them sincerely for their interest. 
The vote was more than thirteen to one in favor of 



continuing the condensed report procedure. Accord- 
ingly this condensed report ... is being sent to all 
policy owners, accompanied by a return card to be 
used by those who would like to receive a complete 
report containing, among other things not in the 
shorter report, a list of our bond and stock invest- 
ments. 



13 



PUBLIC MISCONCEPTIONS 
AFFECTING THE ANNUAL REPORT 



CHAPTER 2 



A number of public opinion and employee sur- 
veys have been made since the war by professional 
poll-takers to see what people really think about 
business. The findings have invariably been dis- 
turbing. They show widespread misconceptions 
about business profits and lack of confidence in 
American business ways. A few of the surveys 
and some of the facts they revealed are mentioned 
below. 1 This brief summary indicates the nature 
of the misunderstanding. 

SURVEY OF PUBLIC 
OPINION ABOUT PROFITS 

A nation-wide poll by The Psychological Corpo- 
ration, New York City, in 1946, showed how 
poorly educated the public is about the profits of 
American industry. Of the people interviewed, 2 
26% had no idea of what profits companies made, 
74% did. Of this 74% , all but 13% were wrong, 
and most of them far wrong. According to gov- 
ernment reports, average profit per dollar of sales 
in 1945 was 3.8 cents, but what the people thought 
was as follows: 

Net Profit on Each Dollar 



Per Cent 




13 


less than 10p (right) 


14 


10c' to 19c (wrong) 


15 


20fi to 99i (wrong) 


9 


30/ to 39^ (wrong) 


17 


40c to 59c (wrong) 


6 


60^' or more (wrong) 


26 


don't know 



When asked what they thought the profits should 
be, their answers were again out of line with ac- 
tual profits. The average allowance was nearly 
2(ty' on every dollar. 



1 For more about the misinformed public, see Why Kill The 
Goose by Sherman Rogers, published by The Foundation for 
Economic Education, Inc., Irvington-on-Hudson, New York. 

2 Personal calls were made in 5000 homes by 513 interviewers 
under the direction of ninety psychologists associated with The 
Psychological Corporation. 

14 



SURVEY OF PUBLIC 

ACCEPTANCE OF FACTS AND FIGURES 

Opinion Research Corporation, Princeton, N. J., 
made a survey of public opinion for Controller- 
ship Foundation, Inc., on "The Public's Accept- 
ance of the Facts and Figures of Business Ac- 
counting." The survey revealed some startling 
facts. 

(1) The public has an erroneous impression of 
the amount of profit made by business firms; 

(2) A considerable section of the public does not 
understand the terms in which business reports are 
couched, even though they are sanctioned by long 
use; 

(3) In spite of certified audits and all the safe- 
guards imposed by Federal and State laws, and by the 
regulations of the Securities Exchanges, a substantial 
percentage of the public distrusts the financial state- 
ments of business. 

RAILWAY SURVEYS 

For several years Opinion Research Corporation 
has conducted an annual survey of public opin- 
ion about the railroads for the Association of 
American Railroads. In the 1947 survey, the 
public's views of railroad profits were slightly 
nearer the facts than the previous year, but a large 
majority were still uninformed or misinformed on 
this important issue: 14% estimated that the rail- 
roads earned 5% or less, 24% estimated earnings 
at 20%, or more. The average (median) esti- 
mate was 12%,. For the year 1946, the actual 
earnings of Class I railroads were 2.18% on invest- 
ment before depreciation, and 2.75% on invest- 
ment after depreciation. 

In this survey, the public said the railroads 
should make 10%,. More than three-quarters of 
those who expressed an opinion felt that 6%, or 
more would be a fair per cent of profit. 

An employee survey conducted for Railway 
Age, Raihvay Mechanical Engineer and Railway 
Engineering & Maintenance by Opinion Research 



PUBLIC MISCONCEPTIONS AFFECTING THE ANNUAL REPORT 



Corporation showed that only 4% of employees 
thought the railroads earned 5% or less in 1944, 
9% thought they earned over 75%. The aver- 
age (median) estimate was 27%. According to 
Interstate Commerce Commission figures for that 
year, the railroads earned 4.18% on investment. 

STEEL INDUSTRY SURVEY 

'An Appraisal of the Steel Industry" was made by 
Opinion Research Corporation in 1946 while the 
industry-wide strike was still fresh in the minds 
of the people. It showed that both steelwork- 
ers and the public had erroneous conceptions 
of the profits made by the industry. The public 
thought that steel made a profit of 20 cents on the 
dollar and that 10 cents would be fair. Steel- 
workers believed steel made 25 cents profit on the 
dollar and granted 15 cents as fair. The public 
thought 5 cents was paid in dividends to each dol- 
lar paid in wages, steelworkers thought the ratio 
was 7 cents to the dollar. 

The following table from Steel Facts, published 
by the American Iron and Steel Institute, gives the 
facts, as revealed in consolidated returns of groups 
of representative parent companies, including 
steelmaking and non-steelmaking operations. 

Division of Steel Companies' Sales Dollar 

7 939 7 940 7 94 7 7 945 7 946 

Misc. Operating Expenses . . 50J-2 49 V2 49 52 48 
(Materials and other costs) 

Payrolls 37 35 33 40 41 

Taxes 514 6V 2 11 V 2 AK 5 

Left in Business 3 4 3 % 2 l A 

interest ^y 2 1 y 2 y 2 y 2 

Dividends 9V 2 4 3 9V 2 3 

100 100 100 100 100 

The cash dividends paid equalled 7.5 cents for 
each dollar paid to employees in 1946, compared 
with 6.0 cents for each dollar spent on payrolls in 
1945. 

SURVEY OF PUBLIC OPINION 
ABOUT CORPORATE OWNERSHIP 

To find out the facts about public thinking on 
corporate ownership, Controllership Foundation, 
Inc., had a survey made of urban adult opinion 
on the subject. 3 Conducted by Psychological 
Corporation in 1947, this poll revealed that most 
people in the United States have mistaken ideas 

J The survey was conducted in 28 towns and cities chosen, 
on the basis of census figures, to give a proper cross-section of 
the nation's urban population in terms of city size and geo- 
graphic location. One thousand interviews were made. 



about the ownership of big corporations. Here 
are a few indications of the lack of information 
and the misinformation, as brought out in the 
report on the survey: 

Eight out of ten people admit that they can only 
guess how many people own a big corporation. 

One out of five persons would judge that a big corp- 
oration is usually owned by fewer than too people; 
one out of four would estimate that a big corporation 
is owned by 20,000 or more people. 

Almost one out of three people agrees with the 
statement that "a handful of men like the duPonts, 
Rockefellers, Fords, and so on own most of the cor- 
porations in America." 

Fewer than half (47 per cent) of the people believe 
that the general public — ordinary people who have 
spare money to invest — are the owners of big corpora- 
tions. 

Seven out of ten people think that corporation 
owners are mostly men. 

Six out oi ten people believe the average age of 
corporation owners is between 50 and 60. 

Nearly half (46 per cent) of the people think the 
owners live, for the most part, in the East; 42 per cent 
believe the owners are scattered over the nation. 

Almost half (49 per cent) of the people think the 
persons who own big corporations are "smart, intelli- 
gent, and well-educated." 

WHAT THE PUBLIC 

THINKS OF PRIVATE CAPITALISM 

With the public holding such mistaken notions 
about profits and ownership, it is not surprising 
that surveys to determine what it thinks of Ameri- 
can private capitalism show a startling number of 
disbelievers in free enterprise. Dr. Henry C. 
Link, Vice-President of Psychological Corpora- 
tion, found in a general population survey made 
in May 1947, that 34% thought they would get as 
much or more under government ownership, 36% 
thought they would get less, and 30% were un- 
certain. 

PUBLIC ATTITUDES 

AND THE ANNUAL REPORT 

The misconceptions and lack of confidence that 
exist lead to this conclusion — Every annual report 
should be prepared with these objectives: (1) To 
remove the misconceptions, (2) to foster a better 
understanding and higher appreciation of the 
American system of free enterprise. Ways in 
which this can be done are discussed throughout 
this book. 

15 



CHAPTER 3 



WHAT TO COVER 

IN THE ANNUAL REPORT 



While any study of modern annual reports will 
show that they treat more or less the same subjects 
and use the same techniques, a good modern re- 
port has its own individuality. The reason is that 
it is designed to fit a particular company. 

INFLUENCES ON 

CONTENTS AND MAKE-UP 6 

The following factors should be considered in de- 
termining the physical qualities and contents of 
the report: 

n 

1. Type of industry represented. The nature of 

the business determines to a considerable ex- 
tent the contents and make-up of the report. 
For example, reports of railroads, public utili- 
ties, investment trusts, insurance companies, °- 
banks, mining companies, aviation companies 
— to mention only a few — have their own spe- 
cial characteristics. They differ materially 
from a typical industrial report. Even indus- 
trial reports, as a group, vary with the nature 
of the business. A company manufacturing 
heavy machinery might have a report that 
suggests strength; one making cosmetics for 9. 
women might lean toward lighter motifs. 

2. The size of the company. An abbreviated an- 
nual report for a large corporation would be 
as incongruous as a pretentious one for a small 
company. 

3. The earnings. A style of report should be 
adopted that can be used consistently in good, 
bad, and average years. The company should 
avoid a report that is so obviously expensive to 
produce that stockholders will cry "extrava- 
gance." 

4. The type of stockholder. If housewives con- 
stitute the largest single group of stockhold- 
ers, the physical quality and tone of the report 
should be less dignified and staid than if the 
major group comprise elderly gentlemen in 
the upper income-tax brackets. 

5. Whom the report is to be sent to. The in- 
16 . 



fluence of audience on plan, content, and 
treatment is brought out in Chapter 19, Re- 
ports to Employees, and Chapter 20, Winning 
Public Goodwill Through the Annual Re- 
port. Here it is sufficient to say that it is im- 
portant to bear in mind who will read the 
report. 

Hoiu readers are going to use the report. 
Will they save it, give it away, or throw it 
away? See pages 216, 217, 222 and 223 for 
surveys on this subject. 

Particular interests and desires of stockholders 
and others who have indicated their reactions 
in surveys. Chapter 17 is devoted to such 
surveys. 

What other material is sent to the stockholder. 
A company that issues quarterly, informal re- 
ports to its stockholders on company develop- 
ments and prospects, dividend enclosures, and 
other stockholder literature, might restrict the 
scope of its annual report to an explanation of 
the financial statements. For further discus- 
sion of this subject, see Chapter 18. 

Desire to satisfy one class of readers. A com- 
pany may give consideration to all the above 
factors and then decide that, for its purposes, 
it is best to write the report for a particular 
group of readers, even though that group is in 
the minority. For example, Consolidated 
Edison Company has in mind particularly the 
security analyst and sophisticated stockholder 
when it prepares its annual report. The re- 
sponsible executives feel that if they satisfy 
this group, other stockholders are bound to 
get something from the report. This com- 
pany, however, has a well-rounded stock- 
holder-relations program and can afford to put 
the "professional" stockholder in the front 
rows of its annual-report audience. The non- 
professional stockholder gets this preferred 
position in other parts of the stockholder-rela- 
tions program. 



WHAT TO COVER IN THE ANNUAL REPORT 



THE PRESIDENT'S LETTER 

The phrase "the president's letter" dates from the 
time when the annual report consisted of a letter 
from the president of the company transmitting 
the financial statements. It might or might not 
have contained comments on the statements. To- 
day, the president's letter is still found in most an- 
nual reports, but in a variety of treatments. For 
example: 

1. The entire report, with the exception of the 
financial statements, is in the form of a letter 
to the stockholders — and others, in some cases 
— signed by the president. The financial 
statements may be offered with a brief trans- 
mittal letter from the treasurer. 

2. The first portion of the report, dealing with 
the review of the year and comments on the 
statements, is in the form of a president's let- 
ter. The financial statements and the mate- 
rial following; the financial statements, such as 
reports on activities, products, divisions, edu- 
cational matter, are offered as separate parts, 
not embodied in a letter. Under this plan, it 
is possible to include up-to-the-minute infor- 
mation on developments since the close of the - 
corporate year. The president's letter thus 
has the freshness of a news letter to stock- 
holders. 

3. The president's letter is a brief transmittal 
letter. The report is not embodied in the 
letter. 

4. There is no president's letter. The financial 
statements are submitted by the treasurer. 

The by-laws of the company may dictate the 
way in which the report is submitted. For ex- 
ample, if the by-laws provide that the board of 
directors shall present an annual report to stock- 
holders, it is likely that there will be a "letter" 
submitted by order of the board, and signed by the 
chairman of the board. 

The president's letter, when included as a sepa- 
rate unit, should be as well written as any other 
part of the report. Sometimes a president who 
thinks he has something special to offer will insist 
upon doing the letter in his own way. No one 
will tell him that his letter does not synchronize 
with the report. But someone should. On the 
other hand, there are some extraordinary person- 
alities among top executives in the business world 
whose letters give the annual report a quality that 
no one else can supply. 



THE GENERAL PLAN 

No rules can be laid down as to what plan the re- 
port should follow or the order in which subjects 
should be treated. Some thoughts on planning, 
as offered by those who have produced outstand- 
ingly good reports and as evidenced by a selected 
group of comprehensive reports, are given below. 

1. Select a central theme and organize the re- 
port in accordance with that theme. A Gen- 
eral Mills annual report was called How 
General Mills Grew Last Year. That theme 
was present in each subject reported upon. 
In a report of Dominion Stores Limited, the 
aims of the company were the theme of 
the report. The first two pages explained 
the aims, and the president's report tied in 
with them. Thus, in the part dealing with 
employee relations, the aim ". . . to provide 
its employees with a satisfactory living under 
the best possible conditions" was repeated as 
a caption and the text showed how the aim 
was carried out. Pittsburgh Consolidation 
Coal Company used as a theme the activities 
of the company in relation to the role played 

,by the miner. A public relations theme is 
often found in reports of companies that 
strive for good public relations. Some ex- 
amples are given at page 279. 

2. Open the report with a statement that sum- 
marizes the year's results. 

3. Treat the subject of earnings early in the re- 
port. 

4. Build the report around a discussion of each 
division of the company. 

5. Construct the report as a commentary upon 
each item in the financial statement. The 
Yale & Town Manufacturing Company num- 
bers each item in its Comparative Statement 
of Income and Surplus and in its Compara- 
tive Balance Sheet. In one of its annual re- 
ports there were forty-two numbered items. 
The comments on the statement are tied up 
with the numbered items. Thus, the com- 
pany offers its narrative on sales as Item 1, 
the first item in the Comparative Statement 
of Income and Surplus, instead of under a 
heading "Sales" or "Revenues from Opera- 
tions." Only those items are commented 
upon that call for an explanation. 

6. Include a discussion of the financial state- 
ments. Cover the income statement under 

17 



WHAT TO COVER IN THE ANNUAL REPORT 



a heading such as "Operations," cover the 
balance sheet under a heading such as "Fi- 
nancial Condition." 

7. Devote the first part of the report to the re- 
view of the year closed and the financial 
statements, and the second part to such sub- 
jects as: 

(a) The company's progress in its various 
activities during the year. 

(b) The company's products. See page 
166 for comments on developing a 
product section. 

(c) Educational matter. See page 29. 

(d) A discussion of each division of the 
company. 

(e) Explanations of any special policies and 
programs. 

8. Bring out the most important development 
of the year through a center spread that tells 
the story graphically. For an example, see 
Fig. 8, page 52, reproduced from a report of 
The Studebaker Corporation. 

9. Write the narrative portion of the report for 
the nontechnical reader and the financial- 
statements section for the trained reader of 
accounting reports. But see page 12. 

10. List the outstanding events of the year under 
the titles "Pleasant" and "Unpleasant." 
The Florida Power Corporation used this 
novel idea in a recent report. There were 
four pages of "pleasant items" and one page 
of "unpleasant items," each containing from 
one to four lines of type. The items were 
grouped more or less logically, but no head- 
ings were used to separate the groups. In- 
stead, the subject matter was suggested by 
line-cut illustrations. 



ILLUSTRATED BOOKLETS 

Some companies have gotten out double-feature 
reports, one booklet for the pictorial account of 
the company's progress, activities, products, or spe- 
cial phases of its work, and another for the review 
of operations and financial statements. Under 
this plan, the special booklet or brochure can be 
used all year round for other sales and goodwill 
promotion purposes. 

Union Carbide and Carbon Corporation, for 
example, issued a twenty-eight-page annual report 
in which no color was used. The back cover had 
a three-inch fold, into which was placed an il- 
18 



lustrated thirty-two-page booklet describing the 
"Products and Processes" of the company. 

The United Aircraft Corporation issued a "Pic- 
torial Report," along with its annual report, in 
which research and development were colorfully 
explained. 

A report to stockholders of Pullman Incorpo- 
rated contained twenty-eight pages of narrative 
material and financial statements, without color 
except on the front and back covers. But two 
colorful enclosures were sent with the report. 
One showed in photographs and story the number 
of cars built since the war and the railroads for 
which they were built. The second enclosure 
dealt with the products of the M. W. Kellogg 
Company, one of the company's subsidiaries. 

Freeport Sulphur Company sent out several 
years ago a profusely illustrated booklet showing 
where and how sulphur is mined, where the com- 
pany's employees live, the uses of sulphur in dif- 
ferent industries, and other interesting aspects of 
its activities. B. F. Goodrich Company devoted a 
booklet to showing how Goodrich's many prod- 
ucts are used in farming, pick-up and delivery, 
aviation, clothing, and other fields. 

SUBJECTS TREATED 

IN THE ANNUAL REPORT 

Most of the subjects listed below are treated in a 
comprehensive annual report. 

1. Progress made during the year — Results at 
a glance. See Chapter 4. 

2. Production. See Chapter 5. 

3. Volume of business — Sales. See Chapter 
6. 

4. Costs of doing business — Where the sales 
dollar went. See Chapter 7. 

5. Earnings and dividends. See Chapter 8. 

6. Financial condition. See Chapter 9. 

7. Employment, wages, and employee relations. 
See Chapter 10. 

8. Taxes. See Chapter 11. 

9. Stockholders. See Chapter 12. 

10. Products, research, advertising:, and sellino-. 
See Chapter 13. 

1 1. Public relations. See Chapter 20. 

12. The company — Its history and present or- 
ganization. See page 19. 

13. Management personnel. See page 21. 

14. Policies and principles. See page 22. 

15. Government relations. See page 27. 

16. Litigation. See page 27. 



WHAT TO COVER IN THE ANNUAL REPORT 



17. Outside factors affecting the company. See 
page 28. 

18. Plans for the future. See page 28. 

19. Financial statements. See page 31. 

The subjects on which the most help can be ob- 
tained from this book are covered in separate 
chapters, as indicated in the references above. 
The remainder are discussed in this chapter at the 
pages noted. 

In the separate chapters, the ideas for handling 
the subjects are presented under the following 
five-part scheme: 

1 . A checklist for points to be considered in pre- 
paring the narrative on the subject. 

2. A checklist for ideas for charts, graphs and 
other pictorial presentations of the subject. 

3. Reproductions of adaptable charts, graphs and 
pictorial presentations of the subject. 

4. Ideas for statistical data dealing with the sub- 
ject, given in skeleton form; that is, the head- 
ings and arrangement of the tabulation are 
presented. 

5. Excerpts from actual annual reports. 

THE NARRATIVE 

The subjects outlined above, except for financial 
statements, comprise the narrative portion of the 
report. This narrative, through word, illustra- 
tion and statistics, explains the corporate story re- 
flected, but inadequately revealed, in the financial 
statements. It tells the story of private enter- 
prise, sometimes between the lines and sometimes 
in direct messages, as illustrated elsewhere in this 
book. For the stockholder who is untrained in 
accounting terminology, it is the most important 
part of the report. 

The suggestion was made in an article by Paul 
J. Graver and Christian C. Luhnow, in the August 
1945 issue of Trusts and Estates, that perhaps a 
new style of reporting is needed to permit a proper 
evaluation of the benefits of private enterprise. 
According to these writers, the story of business 
may be shown in three chapters: (1) The tools 
with which management and labor work, reflect- 
ing what the investor provided, (2) the products 
made with the tools, showing how management 
and labor used the tools, and (3) the benefits re- 
sulting from the company's use of men and ma- 
chines. The authors analyzed a group of reports 
to demonstrate how business reported upon each 
of these three parts of the private-enterprise story. 



THE COMPANY 

Unless a corporation publishes a separate booklet 
about its work that is sent to investors at the time 
that they first purchase the company's stock, it may 
be advisable to include in the annual report some 
information on the history of the company and its 
present organization. Mention is made on page 
245 of several companies that send company book- 
lets to stockholders. In treating the subject of 
the company in the annual report, the following 
checklist may serve as a reminder of what to cover: 

1. Highlights of company history. Examples of 
highlights are given at pages 38 et seq. 

2. What the company does. Various ways in 
which this may be handled are described at 
page 20. 

3. Organization chart. This device is especially 
useful for listing subsidiary companies, for 
showing the parent company's holdings and 
what it cost to acquire them, and for showing 
the percentage of voting stock held. Another 
example is mentioned at page 21. A chart 
of the internal organization of a company is 
occasionally included in an annual report. 

4. The company's products and how they are 
sold. See Chapter 13. 

5. What the company has done in the field of 
public relations. See Chapter 20. 

6. How the company has helped to improve 
trade conditions in the industry. 

7. Action taken at a previous annual or stock- 
holders' meeting. This action would be men- 
tioned in connection with changes in the 
financial or corporate structure of the com- 
pany, such as increases in capital stock, reclas- 
sification of stock, formation of new subsidi- 
aries, dissolution of subsidiaries, mergers, new 
securities issued, refinancing, reorganization 
plans, and the like. 

8. Proposals for amendment of charter or by-laws 
that will be presented before the next stock- 
holders' meeting. 

HIGHLIGHTS OF COMPANY HISTORY 
ANNIVERSARY NUMBER 

When a company reaches a milestone in corporate 
existence — ordinarily its tenth, fifteenth, twenti- 
eth anniversary, and so on — the annual report is 
often made an anniversary number. Special at- 
tention is given to compiling a report that will 
show the company's progress. More pages than 

19 



WHAT TO COVER IN THE ANNUAL REPORT 



usual are devoted to comment, pictures, charts, 
diagrams, statistics, and messages. The success 
story of any business that started small is proof 
of opportunities under free enterprise. That 
thought might be developed in a message or 
theme. 

One feature of the anniversary number is a page 
or two of highlights in the company's history. 
Here are some developments that are usually high- 
lighted: 

Origin of the company. 

Dividends first declared. 

Continuity of dividend record. 

Merger with other companies. 

Acquisition of control of other companies. 

New plants established. 

Expansion of company and removal to 
larger quarters. 

Acquisition of patents and inventions. 

New products or lines added. 

Creation of new divisions. 

Establishment of research program. 

What the company did during war years. 

Change in company name. 

Inauguration of various employee-benefit 
plans. 

Special recognition of long-time employees. 

Changes in management personnel or pol- 
icy. 

TELLING WHAT THE COMPANY DOES 

A test question to be applied to every annual re- 
port is: Does it tell what our company does? 'It is 
incredible, but true, that hundreds of annual re- 
ports are prepared each year that carry no indica- 
tion whatever of the company's business. If a 
section is included on the company's products and 
how they are sold (see Chapter 13) , there may be 
no need for a separate explanation of the com- 
pany's operations and services. However, inclu- 
sion of such a section does not preclude the use of 
statements such as are given below. 

Skelly Oil Company described its functions in 
one report as follows: 

Skelly Oil Company, a well integrated unit in the 
oil and gas industry, is principally engaged in pro- 
ducing crude oil, natural gas, and casinghead gas; re- 
fining crude oil; manufacturing natural gasoline, sol- 
vents, and liquefied petroleum gas; and marketing at 
wholesale and retail petroleum products, automobile 

20 



accessories, and sundry items. In connection with 
these primary functions the Company acquires and 
develops oil and gas lands and leases; purchases and 
sells crude oil, natural and casinghead gas, and natu- 
ral gasoline; and gathers and transports crude oil to 
its refineries and natural and casinghead gas to its 
gasoline plants. 

Another technique was used by Bendix Avia- 
tion Corporation. A full page carried the state- 
ment given below. A highly decorative "B" in 
the first word, good spacing and a narrow frame 
around the message made an attractive page. 

This is Bendix 

Bendix is essentially a great creative engineering and 
manufacturing organization — unlike any other exist- 
ing in America, ^f Despite the fact of its modern 
manufacturing plants and its demonstrated produc- 
tive capacities, the essence of Bendix greatness lies in 
its ten research laboratories and in the integrated 
knowledge its many engineers have jointly acquired 
in the fields of electronics, magnetics, optics, ceramics, 
electro-mechanics, hydraulics, pneumatics, injec- 
tion-carburetion, aerological physics and metallurgy. 
^| Bendix is constantly exploring the widest possible 
application of all these sciences to all manner of in- 
dustrial, commercial, domestic and human problems. 
^J By virtue of this, wherever machinery replaces hu- 
man effort, there you will find Bendix — leading the 
world in lightening the load on the human mind and 
removing the strain from human backs and hands. 
^J The searchlight of Bendix creative engineering is 
always pointed to a bright and better tomorrow. 
^f When you see the name Bendix Aviation Corpora- 
tion, on any product, you can buy it with the definite 
knowledge that it is first in creative engineering de- 
sign and the last word in quality. 

United-Rexall Drug, Inc., opened its explana- 
tion of the company's business with this question 
and answer: 

WHAT IS REXALL? 

Rexall is a manufacturer. 

Rexall is a distributor. 

Rexall is a retailer. 

Rexall is a philosophy of business. 

It then told the story of Rexall in each of these 
positions. Color pictures of the company's prod- 
ucts were reproduced across the bottom of the 
three pages devoted to this subject. 

Part of the story of what the company does can 
be told in maps showing location of plants and the 



WHAT TO COVER IN THE ANNUAL REPORT 



like (see page 203) and in photographs (see page 
202) . 

Another technique is to use pictorial diagrams 
showing the processes from the first steps in ob- 
taining raw materials to the finished product. 

DIRECTORY 

One or more pages of the annual report are always 
devoted to a directory. It usually appears at the 
beginning or end of the report, but is sometimes 
placed immediately following the financial state- 
ments. An exhaustive checklist of what might be 
included in these pages is given below. A selec- 
tion may be made to suit the needs and wishes of a 
particular company. 

Directors — Names and addresses (city and 
state). 

Officers — Titles and names. 

Executive committee members. 

General counsel — Name and address. 

Auditors — Name and address. 

Transfer agents — Names and addresses. 

Registrars of transfers — Names and ad- 
dresses. 

General offices of the company. 

Sales offices. 

Factories or plants — Where located. 

Subsidiary companies — Addresses and of- 
ficers of each. 

List of branches and manager of each. 

Departments and name of manager, direc- 
tor, or head. 

Various management committees — 
Names of committees and members. 

For some reason or other, some companies fail 
to show their sieneral office address. It should al- 

o 

ways be given as an implied invitation to the 
stockholders to communicate with the company. 
A stockholder who looks for the address and does 
not find it will naturally feel that the company 
would rather not hear from him. Good stock- 
holder relations demand that the stockholder be 
made to feel that communications from him are 
always welcome. 

For decorative purposes, the directory page may 
use horizontal lines to separate one group of 
names from another. This device is especially ef- 
fective in reports that use color. 

Instead of having a conventional directory page, 
a chart of the organization, showing the stockhold- 
ers at the top, may be presented. ATF Incor- 



porated used an organization chart showing the 
board of directors (with names), the president 
immediately below, and corporation records (with 
names of secretary and assistant-secretary-treas- 
urer) and management staff (with names of other 
officers) on a common level immediately below 
the president. Connecting with the president 
and directly below the officers were boxes carrying 
the names and locations of each of the subsidiary 
companies, and below some of these were boxes 
showing the names of divisions. 

In some organization charts, the various func- 
tions of the departments are indicated. In an 
organization chart that constituted the directory 
of United Specialties Company, the photograph of 
each director and officer was included under his 
name. A gate-fold arrangement of the front cover 
made possible a good-sized chart. 



TELLING ABOUT 
MANAGEMENT PERSONNEL 

More and more companies are introducing the 
"family of stockholders" to the men who run the 
company, with photographs of these individuals 
and brief sketches of their careers. This feature 
can be repeated year after year, for there are al- 
ways new stockholders and, in some cases, changes 
in the top personnel. The lay-out of the mate- 
rial, the type of photographs used, and the copy 
may be changed in each report to lend variety to 
the treatment. 

Changes in top personnel are usually men- 
tioned in a comprehensive report. Such mention 
includes new directors and officers, with a brief 
biographical sketch, retirements among directors 
and officers, promotions among key employees and 
deaths among directors, officers, and valued em- 
ployees. Some examples of death notices are 
given at page 22. 

In addition to these usual ways of telling about 
the people who direct the company's affairs, the 
annual report may show something of the charac- 
ter of top management, its aims, standards and 
ideals. This can be done in special messages and 
statements of principles and policies, as described 
on page 23 and in the section dealing with em- 
ployee relations. See page 140 for ideas on this 
subject. 

If the company has introduced some new ele- 
ment in the management set-up during the year, 
an explanation of the change properly belongs in 

21 



WHAT TO COVER IN THE ANNUAL REPORT 



the annual report. For example, when Johnson 
& Johnson created an independent executive staff 
to supervise the expanding sales of foreign sub- 
sidiaries and the operations of these companies, it 
included a paragraph in the chairman's letter on 
the subject. The brief statement showed the rea- 
sons for the change, explained the functions of the 
staff and mentioned the director of the staff and 
his background. 

DEATH NOTICES 

A company that has lost an officer, director, key 
person or long-time employee during the year may 
feel that it wants to honor the memory of that per- 
son with some expression of regret in its annual 
report. Some of the ways in which the obituary 
can be presented are: 

1. Show a photograph of the person with a brief 
expression of sorrow or with a resolution of 
sympathy that has been passed by the board 
of directors. Here is the statement that was 
used, witK a photograph, by the American 
Locomotive Company: 

With deep sorrow the Board of Directors records the 
death on April 25, 1946 of William Carter Dicker- 
man, at that time a Director and Member of the Ex- 
ecutive Committee of the Company. For fifty years 
Mr. Dickerman was a leader in the railroad equip- 
ment industry. President of American Locomotive 
Company from 1929 to 1940 and Chairman of the 
Board until 1946, he successfully brought American 
Locomotive Company through the great depression of 
the '30's, maintaining the organization which en- 
abled the Company to reach unprecedented produc- 
tion during the war years and enter the postwar pe- 
riod strong and fully prepared. Mr. Dickerman's 
death was a great loss to his many associates — in the 
Company and outside — who always benefited by his 
wise counsel and sympathetic advice. 

2. Reproduce an extract from the minutes of the 
directors' meeting at which a resolution of 
sorrow was passed. The following is an ex- 
ample: 

Excerpts from Minutes of a Meeting of the Board 
of Directors Held July — , 19 — 

At the opening of the meeting of the Board of Di- 
rectors, the President announced with regret the 
death of Mr. , at , on Monday, , 19 — . 

Mr. was an old and valued friend to many 

22 



members of the Board prior to his election to the 

Board on , 19 — . The Board honored Mr. 

for his integrity, sincerity, and sound business 



judgment and cherishes the memory of his warm 
friendship and remembers with admiration the un- 
stinted vigor which invariably marked the bestowal 
of his time and strength when he sensed a responsi- 
bility or an opportunity for service, but above all, he 
was esteemed for his qualities as a man; his frankness, 
generosity, human kindliness, and unvarying consid- 
eration lor all with whom he came in contact; there- 
fore, 

BE IT RESOLVED: That, deeply aware of the loss 
sustained, the Board of Directors of the Com- 
pany hereby expresses its deep and sincere sorrow at 

the death of Mr. and its sympathy for his family, 

and directs that this resolution be spread upon the 
records of the Company, be suitably engrossed, and 
be conveyed to the family of Mr. . 

3. List the names of the deceased in a box with 
the heading "In Memoriam." 

4. Include a paragraph in the president's letter 
referring to the loss. 

If the notice is not included on a separate page 
or in a box, it may be set apart from other items 
by black lines above and below. In reports using 
color, no color is used in the notice. 

STATEMENTS OF 
POLICIES AND PRINCIPLES 

Statements of business policy help to create better 
understanding of a company's operations. They 
therefore have a place in the annual report. Fur- 
thermore, putting the policy into words makes 
management see more clearly its responsibilities 
to stockholders, employees, customers and the 
public, and guides it in writing a report that 
reflects its "credo." 

A statement of business policy tells what prin- 
ciples management follows in carrying on its busi- 
ness. From it, one should be able to tell the com- 
pany's broad aims and its approach to business 
problems. Since these problems are diversified, 
the policy statement may be a series of recitals. 
General Mills' statement of policy, for example, 
comprises management's thinking in twelve fields: 

(I) Research, (2) service to the public, (3) free 
competitive enterprise, (4) human relations, (5) 
adequate compensation, (6) quality products at 
fair prices, (7) fair profits, (8) sound advertising, 

(9) modern selling, (10) realistic accounting, 

(II) public relations, and (12) high output and 
lower prices. 



WHAT TO COVER IN THE ANNUAL REPORT 



Company policies are handled in the following 
ways in the annual report: 

1. A statement of principles and policies is in- 
cluded in full. An example is given at page 
24. 

2. Portions of the policy statement are men- 
tioned in appropriate places in the report. 
For example, in a section on research, man- 
agement's approach to this problem might be 
worked in as a policy statement. 

3. The aims and policies form the theme of the 
report. An example is given at page 17. 

THE "SPECIAL MESSAGE" 

The most progressive of the large corporations 
have taken the lead in including in their annual 
reports special messages dealing with basic ques- 
tions in the nation's economic life. There is 
ample justification for such a practice, since cor- 
porate welfare is dependent upon sound public 
attitudes. It is assumed that an annual report 
that contains such a special message will be used 
and distributed to improve industrial public re- 
lations. 

In writing the special message, these guides may 
prove helpful: 

1. Make the basic question clear in the begin- 
ning. 

2. State and defend the company's position in 
regard to the question. 

3. Make the message concise, a page long at the 
most. 

4. Keep the language simple and the story fac- 
tual. 

5. Do not use an argumentative tone. 

6. Avoid too much philosophy and too many ab- 
stractions. 

The "Importance of Management" was the sub- 
ject of a special message in a recent report of the 
General Motors Corporation. It was introduced 
with a note that read: "There never was a time 
in the history of the American economy that de- 
manded as much of the managers of business en- 
terprise. That fact suggested to Mr. Sloan the 
desirability of presenting a personal point of view 
on the subject of management and certain related 
circumstances for the attention of the stockholders 
as a prelude to this annual report." The follow- 
ing year the company included a message on "The 
Importance of the Economic Incentive" as a prel- 



ude to its annual report. This message was de- 
scribed as a corollary to that of the previous year 
in the sense that it dealt more specifically with 
one phase or component of the field of oppor- 
tunity, as related to the functioning of a free com- 
petitive economy. 

In the president's letter to stockholders of Bris- 
tol-Myers Company, an earnest statement was 
made of the company's concern about world con- 
ditions. The paragraph is reproduced below. It 
will be noticed that point two of the formula 
above has not been directly observed. It need 
not be, if the relationship of company welfare to 
the attitude expressed is obvious. On the other 
hand, the rule for showing the company's position 
on any basic question and defending it, is a wise 
one. It prevents a reader from claiming that the 
annual report is being used inappropriately for 
political propaganda, if the view expressed is con- 
trary to the reader's. 

So much tor our own particular business. Re- 
cently I have been seriously disturbed over the casual 
attitude taken by too many of our citizens over the 
future of our nation. We are living in a world of 
political chaos, a world in which millions of people in 
Europe and in Asia are on the brink of starvation, 
existing hopelessly from day to day under conditions 
which would make our worst slum areas seem like 
paradise. Of course, no one can foresee what will 
happen, but for my own part I do not believe one- 
tenth of the world can enjoy peace and prosperity 
while the other nine-tenths is suffering. I do not 
know when the effects of that condition will be felt 
directly by us or in exactly what form, but it is the 
belief of myself and my associates that unless and 
until the affairs of the world are straightened out, we 
are going to be affected. This nation can no longer 
afford the luxury of isolationism. We cannot with- 
draw from world affairs and erect either political or 
economic barriers against the rest of the world. 
Peace and prosperity do not lie that way. This na- 
tion must do more than its share in bringing world 
order out of chaos and that demands statesmanship of 
the highest order above the level of party politics. 
Democracy cannot work at home if it shuts its eyes 
and its ears to the rest of the world. 

STATEMENT OF 

THE COMPANY'S PHILOSOPHY 

It is not unusual to open the annual report with 
a foreword or other prominently displayed state- 
ment of the company's philosophy. Four ex- 
amples are given below. 

23 



WHAT TO COVER IN THE ANNUAL REPORT 



A Statement of Principles 

It is clear that two faiths are meeting in conflict all 
over the world today — at home as well as abroad: a 
belief in an expanding freedom and responsibility for 
the individual versus a belief in an expanding author- 
ity of the state, even though the result may be a con- 
tracting freedom for the individual. 

In such a world Standard Oil Company (New Jer- 
sey) is on the side of human freedom as a matter of 
principle and also because it believes that the pros- 
perity of all Jersey companies is directly related to 
the growth of human freedom. 

Standard Oil Company (New Jersey) does not be- 
lieve in economic blocs and monopolies. Jersey be- 
lieves that competition — the continual offering of bet- 
ter products at lower prices to more people under a 
system where the consumer is free to choose — offers 
the Jersey companies their greatest promise. 

The prosperity of any nation is closely related to 
the freedom which the people of that nation enjoy. 
It is out of individual freedom that people draw the 
hope, the initiative, the willingness to take risks 
which are characteristics of vigorous producers — and 
it is always the actively producing peoples and na- 
tions who are the large consumers and the best mar- 
kets. 

The strength of any nation, like the strength of any 
company, is in its people. High standards of living, 
like high wages, are a product of enterprise — and en- 
terprise grows best in a soil of freedom for the indi- 
vidual. 

The Company believes that restrictions on world 
trade and foreign exchange which cut nations off 
from supplies — especially those supplies which are the 
breath of economic existence — are among the im- 
portant pressures which drive peoples toward excesses 
of nationalism and toward war. Jersey is on the side 
of increased world trade and reduced restrictions. 
In no field is this more important than in the field of 
oil. 

In the future, as in the past, the Company will put 
its chief reliance for growth and prosperity on the de- 
velopment of an exceptional personnel. Jersey feels 
that its greatest asset today as it faces the grave prob- 
lems of a troubled world is the high character and 
ability of its people. The Jersey form of decen- 
tralized organization has the great merits of every 
democratic system, chief among them the stimulation 
it gives to the development of able, courageous, ener- 
getic, self-reliant men and women. 

The Jersey company has obligations as a citizen, 
among them: to act always with a consciousness of the 
public interest; to recognize that a good example is a 
great constructive force; to work for the common 
good, supported by a conviction that what is in the 
interests of the people is in the best interests of Jersey. 

Standard Oil Company (New Jersey) has every 

24 



good reason to approach the future, lor all of its un- 
certainties, with confidence. 

THE BOARD OF DIRECTORS 

The message from W. C. Carter, President of 
the Link-Belt Company, reads as follows: 

A business, like the individuals who make it up, is 
faced with the problem of making a living. Charity 
may alleviate the distress of an individual, but there 
is no such alternative for an ailing business. 

At this time, industry is depressed by the failure of 
understanding of the simple and sound economics in- 
volved in business enterprise. We decry the oppor- 
tunistic attitudes of some who seek group advantage 
at the expense of the general welfare. We believe 
that glittering propaganda must ultimately yield to 
the austerity of simple arithmetic. 

We shall do everything we can to emphasize the 
plain truth that improved living conditions and im- 
proved working conditions go hand in hand with the 
freedom of industry to invent, to invest in improve- 
ment and to progress. 

Fundamentally, Link-Belt Company owes its origin 
and growth to ingenuity and the ability to serve man- 
kind. An institution built around a basic idea of a 
better way to do a job (for that was what the Ewart 
link really was — back in 1875), will continue to pro- 
vide better ways to do many jobs. 

Link-Belt, built upon the ideal of lifting the bur- 
den from the backs of men ... of increasing pro- 
duction at lower costs ... of making available more 
goods to more people through the economies of mass 
production ... of raising the living standards of 
people by spreading more widely the products of in- 
dustry . . . naturally takes a long view of current 
events. 

On this sound conception of values your Company 
faces the future with confidence paced by oppor- 
tunity. 



General Foods printed one year the following 
statement on the cover of its annual report: 

Once there was a man who thought the public 
would buy a delicious and nourishing ready-cooked 
breakfast cereal. Some people laughed at his idea, 
but he had confidence and determination. He was 
successful. Through the years his idea built great 
factories to manufacture Post cereals. In the making 
and distributing of these products, thousands of new 
jobs were created. Many other men with faith and 
courage started the businesses that now form General 
Foods. Aided by investors and employes, they risked 
their savings and labor in the hope of earning a 






WHAT TO COVER IN THE ANNUAL REPORT 



profit. Theirs was the spirit of American enterprise 
— the initiative and courage to balance the risk of loss 
against the prospect of gain, thus establishing and de- 
veloping businesses that create the jobs essential to 
national prosperity. This is the spirit of all Ameri- 
can industry under our system of voluntary enter- 
prise. With proper incentives and with the support 
of public opinion, American enterprise can repeat in 
the future what it has accomplished in the past. 

A foreword in a recent annual report of The 
Flintkote Company combined a brief summary of 
the year's activities with national objectives as 
follows: 

Under the stresses of perhaps the most significant 
year in recorded history, The Flintkote Company 
maintained operations and sales during 19 — at a 
high level despite shortages of labor, unrealistic price 
ceilings and higher manufacturing costs. 

As the Nation and your Company face the disloca- 
tions caused by five years of war, the future holds 
promise of continued prosperity if our citizens insist 
on sound economic, fiscal and social planning so that 
our country remains the land of freedom and oppor- 
tunity. 

Full production and wide distribution of the Com- 
pany's building and industrial products, as well as 
those of the other major industries of the Nation, 
could bring the objectives sought: — fair wages, rea- 
sonable profits, homes for our veterans and a better 
living standard for all our people. 

STATEMENT OF 
ANNUAL REPORT POLICY 

A number of corporations explain their annual 
report policy with a few paragraphs in the presi- 
dent's letter, others include a full-page statement. 
The National Dairy Products Corporation in- 
cluded the following policy statement in the presi- 
dent's letter: 

In the preparation of National Dairy's annual re- 
port the objective has always been to make the report 
truly informative, not only as regards financial data, 
but also to the end that it will project a clear picture 
of what the Company is doing and what it hopes 
to do. 

The management of National Dairy believes that 
its stockholders are entitled to more than a mere 
statistical report. Only when both stockholders and 
employees understand how a business operates, know 
where it came from and where it plans to go, can they 
supply the support and co-operation needed for the 
success of the mutual enterprise. 



In line with that policy, we hope the additions we 
have made to our report this year will provide more 
convenient reference to all aspects of National Dairy's 
business. We earnestly solicit your attention to each 
section in the hope you will know your Company 
better. 

The full-page statement on annual report pol- 
icy that follows was a foreword in an Electric Boat 
Company annual report. 

The management of Electric Boat Company several 
years ago established a policy to provide its stockhold- 
ers with financial and other data about the Company 
that is both adequate in scope and understandable in 
form. 

The anachronistic, stereotyped, financial report is 
almost unanimously condemned by the present-day 
stockholder as being either overly technical, uninter- 
esting, confusing or insufficient. For the most part 
corporation records are statistical in form. Statistics 
make notoriously dull reading. It requires much 
patient effort of the financial executive to draw up a 
report which will meet the understanding and stimu- 
late the interest of the majority of his stockholder 
audience and at the same time meet the requirements 
of the professional investment counsel and analyst. 
It is the course of least resistance not to attempt to 
achieve this happy compromise. The common as- 
sumption that most stockholders are completely indif- 
ferent to their company's activities, its advancement 
and its existence as an established institution has 
been, as one result, too often justified. 

Some corporation executives, however, are of the 
opinion that much of this stockholder indifference 
and inattention may be, at least in part, overcome 
through plain and appealing corporate reporting. 
Experience has demonstrated that a very real and in- 
formed interest does frequently result. This in turn 
helps to strengthen and justify the venture capital 
principle which is basic in American industrial eco- 
nomics. 

This Annual Report for 1946, our forty-seventh 
year, represents, therefore, an effort to give as clear 
and as complete a record of operations for the current 
and past several years, and the background thereof, 
as is possible. We hope that information sufficient 
to provide a basis for an intelligent appraisal of 
equity values has been made available herein. 

From necessity this Company's earnings reports 
have for many past years been made but once a year 
as it has been impossible to reflect properly on a short 
term basis the operating results of a business where 
well over a year's time has been required in con- 
structing, delivering and obtaining payment for a 
single unit of its major product. Now that the Com- 

25 



WHAT TO COVER IN THE ANNUAL REPORT 



pany's activities have been more widely diversified, 
the management plans to report to stockholders at 
more frequent intervals. 

The management furthermore pledges that it will, 
to the best of its ability, provide in all of its reports 
adecptate and understandable facts, with the aim of 
arousing the keen personal interest of every stock- 
holder. If this goal is advanced, even though never 
completely attained, it will have been worth the effort 
required. 



TELLING ABOUT 
REPORT IMPROVEMENTS 

When a corporation is preparing its first new type 
of report, it may want to call attention to the 
change. Here is how American Home Products 
Corporation announced the innovation to its 
stockholders. At the top of page one of the first 
of its modernized reports, it showed a photograph 
of its Chairman of the Board, Alvin G. Brush. 
Immediately below it reproduced the following 
letter from the chairman: 

To the Stockholders of American Home 
Products Corporation 

A Personal Message From the Chairman 
of Your Board of Directors 

In the pages which follow I have the pleasure of 
presenting to you a new kind of Report on the opera- 
tions of your company. 

You have helped supply the capital without which 
this business could not be conducted. Appearing in 
their appropriate place in this Year Book are finan- 
cial statements showing how this capital has been 
cared for and employed; what profits it has yielded; 
and by what assets it is now represented. 

But the full story of a business cannot be told by 
such financial reports alone, satisfactory as they are. 
Nor can its full value to its stockholders, its em- 
ployees, its customers and its times be appraised from 
such statements. 

Today we conceive it to be the responsibility of 
every business management to answer, not only the 
questions of the auditors, but such questions as these: 

What contributions are you making to the winning 
of the war? 

What planning have you done to insure a stronger, 
more effective business in the post-war world? 

What steps have you taken to keep in the forefront 
of scientific and technological developments? 

What policies have you adopted to make this busi- 
ness a source of human satisfaction to all who 
work in it and for it? 

In short, a business such as American Home Prod- 

26 



ucts Corporation is today a social organism, with 
responsibilities extending in many directions, and 
touching the lives and welfare of millions of people. 
In the full consciousness of such responsibilities, 
your management has tried to portray here something 
of what it is doing to meet them. I believe that you 
will find it a story in which you can well take pride. 

Sincerely yours, 

(signed) Alvjn G. Brush 

Gerber Products Company included the follow- 
ing foreword in its expanded report: 

Foreword 

Annual reports are generally cold and impersonal 
things. Our entire operation is one of dealing with 
people — not things. People grow the foods that go 
into our products, people process these foods in our 
plants. People distribute them, sell them. All these 
efforts are based on the acceptance of Gerber Baby 
Foods by still another group of people — babies. As 
our business philosophy expresses it — "Babies Are 
The Most Important People." 

So we've tried to get away from a strict, statistical 
presentation of progress made in the past year. This 
annual report is not, therefore, prepared only for the 
eyes of the trained financial analyst but for people — 
people whose investment in our Company may be 
represented in money or in farm equipment or in 
work. 

(signed) Dan Gerber 

In the conclusion to the president's letter, Na- 
tional Lead Company referred as follows to the 
enlargement of its report: 

So that you, the Stockholders, may have a broader 
view of the scope of the activities of your Company, 
we have expanded somewhat the form of Annual Re- 
port used in previous years. It is hoped that you will 
find the section devoted to the Company's products 
interesting and informative and that the comparative 
form in which the financial statements are presented 
will facilitate your study of them. 

Each year's report may introduce some new 
features that increase the effectiveness of the re- 
port. National Dairy Products explained such 
changes as follows, under the title "Graphic 
Facts": 



Each year we have broadened the scope of our an- 
nual report to stockholders in the interest of com- 



WHAT TO COVER IN THE ANNUAL REPORT 



prehensiveness, visual clarity and comparative data. 
To this end, numerous features have been added to 
the report in recent years. Notable among them are 
the Review in Brief section at the beginning of the 
report and the Condensed Ten-Year Statements of 
Consolidated Assets and Liabilities and Profit and 
Loss which are contained in the Financial Statements 
at the back. 

In line with this policy, it has been our practice to 
employ charts and graphs to supplement the informa- 
tion contained in the text. On this and the two 
following pages appear a visual presentation of a 
number of the salient facts concerning our financial 
position and operations. 

GOVERNMENT RELATIONS 

Government has its effect upon business in two 
ways: (1) Through its administrative policies, 
such as attitudes toward labor, foreign relations, 
taxes, legislation and the like; and (2) through 
actual or promised legislation, regulation and in- 
vestigation, and through court decisions that hit 
particular industries or businesses. 

The former, being of a basic and political na- 
ture, are usually not handled directly in the an- 
nual report. They may be referred to in state- 
ments of principles (see page 24) , in remarks on 
policies (see page 22) or incidentally, in reports 
on other subjects — employee relations, for ex- 
ample, as at page 141. 

But where the government has seriously in- 
fluenced the operations of a particular company, 
or threatens to do so, an explanation is given to 
the stockholders, whether or not newspapers and 
other periodicals have treated the subject thor- 
oughly. This explanation may give the substance 
of the requirement, the impact upon the com- 
pany, the way in which it is adjusting to the 
change, and, possibly, how the industry in general 
is reacting to the condition. 

Many examples might be given of the second 
type of government influence. The effects of the 
Public Utility Holding Company Act were cov- 
ered for many years in annual reports of certain 
public utility companies. In recent years, the 
Supreme Court decision in the famous "portal to 
portal" case (Anderson v. Mt. Clemens Pottery 
Co., (1946) 66 S.Ct. 1187) was mentioned in a 
number of reports. This case held that nonpro- 
ductive time before and after regular working 
hours may be "hours worked" under the Wage 
and Hour Law. Corporations that faced the pros- 
pect of suits for wages as a result of that decision 



included some reference to the contingent liabil- 
ity in their annual reports. Anti-trust suits that 
affect the company are another example of govern- 
ment relations that need coverage in the annual 
report. 

CHECKLISTS FOR COMMENTARY 
ON GOVERNMENT RELATIONS 

The following checklist can be used as a reminder 
of government relations that ought to be covered: 

Legislation enacted or threatened that af- 
fects the business. 

Legislation advocated by the industry. 

Rate changes. 

Tariff policies. 

Franchise matters. 

Municipal ownership activities. 

Reclassification of property to comply with 
a Uniform System of Accounts. 

Proceedings before Federal or state com- 
missions. 

Tennessee Valley Authority relations. 

Anti-trust suits. 

Government and industry cooperation. 

Grading and labeling. 

The following checklist may be useful for cover- 
ing the story: 

What is the nature of the influence? 

Is it Federal, state or local? 

What industries are affected? 

How does it specifically affect the com- 
pany? 

What is being done in the industry to ad- 
just to the situation or protest it? 

What is the company doing to adjust to the 
situation or protest it? 

Will the stockholders be kept informed of 
developments during the year? 

Can the stockholders do anything to coop- 
erate with the company's program? 

LITIGATION 

Any important suits against the company by gov- 
ernment or private interests should be reported 
upon in the annual report if loss of the suit would 
involve substantial payments or seriously affect 
the company's operations. Thus, anti-trust suits, 
suits against the company for "portal to portal" 
pay, for patent infringement, for royalties, and 
the like, are usually reported upon. If the cor- 

27 



WHAT TO COVER IN THE ANNUAL REPORT 



poration brings suit against others, the case may 
or may not be mentioned. If the case has aroused 
public interest, it should undoubtedly be reported 
upon. 

Sometimes the contingent liability involved in 
pending litigation is brought out in a note to the 
financial statements. 

OUTSIDE FACTORS 

Outside factors affecting the company also fall 
into two groups — those that apply to the industry 
generally, and those that affect the particular com- 
pany. Competition, conditions in consumer in- 
dustries, and rural electrification, for example, are 
outside factors that may closely touch the com- 
pany's welfare. They have often received specific 
treatment in annual reports. On the other hand, 
the economic situation and the rising costs of gov- 
ernment are matters influencing business gener- 
ally, and their treatment is usually incidental to 
other discussions. 

Under the heading of outside factors may come 
matters of public relations. The company may 
report upon any phase of its public relations pro- 
gram, either separately or in connection with 
other activities. For example, in reporting on 
research, it may show the grants that have been 
made to universities and other research institu- 
tions; in the employee section, it may show how 
facilities available to employees are used by the 
community. For a more detailed discussion of 
coverage of public relations in the annual report, 
see Chapter 20. 

PLANS FOR THE FUTURE 

Companies cannot afford to overlook the fact that 
stockholders want to know what the future holds 
for the company. It is usually foolhardy to make 
specific forecasts, for external factors have a way of 
interfering with the best laid plans. What stock- 
holder wants to see a printed forecast by its execu- 
tives proved wrong by actual developments? A 
safe rule is to show what the company is prepared 
to do should a rise in business occur. This sub- 
ject is usually best handled in connection with the 
report on various phases of the business. In the 
report on sales there is room for showing trends 
and plans for new products; in the production re- 
port, comment may be made on methods and pro- 
cedures for increasing output; in the discussion of 
the plant, equipment and facilities, the expansion 
28 



program may be covered; in the costs section, 
methods of cutting costs may be indicated; in dis- 
cussing financial conditions, plans to raise capital 
for expansion may be noted; in the employees sec- 
tion, training programs may be covered; in the 
section on products and how they are sold, adver- 
tising plans may be enumerated. 

This does not mean that the corporation should 
omit a section on the outlook for the company. 
It merely means that the projection into the fu- 
ture should be made in general terms. The fu- 
ture of any company is tied up with the economic 
future of the United States. For that reason many 
corporations bring into the opinion on the busi- 
ness outlook a statement of the beliefs on which 
they base their day-to-day efforts. This is an ex- 
cellent place to carry the message of what business 
recognizes as its contribution toward strengthen- 
ing the private-enterprise system. An example is 
given below from an annual report of ATF, In- 
corporated. 

And Now the Future 

The most difficult question which stockholders ask 
me in their letters is "What Are Future Prospects?" 
When confronted with this question dozens of con- 
siderations flash through my mind. 

The future of this company is inextricably tied to 
the economic future of the United States. And, con- 
tinued prosperity in this country hinges on many fac- 
tors — American foreign policy, taxation, strikes and 
our participation in world economic affairs. All of 
these factors place business management in the posi- 
tion of having continually to adjust policies and 
plans to offset the cross currents set up by every ma- 
neuver of politicians, every impact of foreign eco- 
nomic turn of events, power-grabbing moves of cer- 
tain greedy labor leaders, and the efforts of amateur 
economic dabblers. 

The American public generally and many of the 
people whom they elect to political office do not un- 
derstand economic forces. Nor do they realize that 
agriculture and business are the foundations upon 
which the economic, and consequently the social, wel- 
fare of the citizenry must be founded. This lack of 
information has been used to great advantage by the 
communists and self-seeking interests who see selfish 
opportunity in chaos, and who try to bring about this 
chaos through distortion of facts. The businessman 
must of necessity assume the burden of placing before 
the public tlie actual facts of business operation and 
must demonstrate the way in which the welfare of the 
individual ties in with that of business. He must 
show the public that profits come through the render- 



WHAT TO COVER IN THE ANNUAL REPORT 



ing of service, and that profits instead of being a bur- 
den upon the consumer are the one and only means 
of assuring the consumer lower prices and higher 
standards of living. This education cannot be done 
through an advertising campaign. It must be done 
on the community level by making the people in the 
community familiar with the operations of the busi- 
nesses within the community. 

Business has another obligation and that is to do 
what it can to soften both economic peaks and depres- 
sions. I hold no theory that peaks and depressions 
can be eliminated entirely. As long as governments 
make wars, as long as governments fumble both in- 
ternal and international trade relations, and as long 
as human psychology remains as it is, there are going 
to be waves in the business cycle. The businessman, 
because of his key position in the economic structure, 
is the only one in a position to soften the effects of 
both economic peaks and depressions. Government 
can help but government cannot do the job alone. 
All that government alone can do is to bring the 
whole economy down to the level of the valleys, and 
only by placing the entire people in a continuous 
state of depression can it eliminate economic varia- 
tions. This is all that dictators and governmental 
controls have ever been able to do. 

The fact that many of the outstanding leaders of 
business are acutely aware of the necessity of states- 
manship in business, and the fact that this awareness 
is TOvernins; their actions, is one of the most encour- 
aging phenomena of the times. 

Your own company is doing its conscientious best 
in rising to the solution of these problems. We are 
inviting the people of the community into our plants 
so that they may see how we function and how we 
affect their daily lives. Your company is also sup- 
porting and actively working with such organizations 
as the Committee for Economic Development and the 
National Planning Association. The first is a group 
of businessmen and the second a group of men in 
business, agriculture and labor. Both organizations 
are making an earnest effort to place sound economic 
principles in the hands of all businessmen so that 
management will be in a better position to guide 
their companies in the interests of society as a whole. 

Thomas R. Jones 



EXPRESSIONS OF APPRECIATION 

The person signing the "letter" in which the re- 
port is embodied may want to include an expres- 
sion of appreciation for the loyal and faithful 
services of labor, salaried employees, management 
and the board of directors, and for the support of 
the stockholders and the public. Sincerity is the 



one essential of such a statement. It must not be 
or appear to be a mere perfunctory closing re- 
mark. 

ADDING INTEREST 

WITH EDUCATIONAL MATTER 

The annual report is a story of the company's ac- 
complishments for the year, but it need not end 
there. It can include material related to the com- 
pany's business that is interesting and educational. 
Such a report is not likely to be thrown away 
quickly by the stockholders or other readers. 

Macfadden Publications Inc. has made its re- 
port a useful educational instrument that can have 
value in building good public relations for the 
company. One year it devoted a portion of its 
report to the operations of the publishing busi- 
ness, editorial, advertising, circulation, traffic, ship- 
ping, and so on. The following year, the closing 
portion of the report contained a vivid word-pic- 
ture story of the processes of "transforming mil- 
lions of acres of wilderness into bright and color- 
ful magazines." In this part of the report the 
reader was taken behind the scenes to see some of 
the steps that are taken by the companies from 
whom Macfadden buys its paper and printing. 
The twelve pages of excellent photographs, with 
150 words of copy for each seven-by-eight-inch 
picture, took the reader "on a whirlwind tour 
from the great forests of the northwest and south, 
through the giant paper-making plants, through 
engraving and printing processes, to the final de- 
livery of Macfadden magazines . . ." Macfad- 
den's report measured lOi/i" X 8"- The cover, 
which went with the story of paper, simulated the 
appearance of knotty pine. 

Other examples of educational material are 
given at page 281. 

INCLUDING NOTICE 
OF ANNUAL MEETING 

Where the annual report is mailed to stockholders 
before an annual meeting, a notice of the forth- 
coming meeting may be included on the title page 
of the report. Such notice does not, of course, 
obviate the necessity for sending the regular no- 
tice called for by statute or by-laws. For ex- 
ample, on the title page of a Coca-Cola Company 
annual report to stockholders is the following 
statement: 

29 



WHAT TO COVER IN THE ANNUAL REPORT 



The annual meeting of the stockholders 
will be held on Monday, May 5, 19 — . A 
formal notice of this meeting, together with 
proxy and proxy statement, will be mailed 
to each common stockholder on or about 
April 10, 19 — , at which time proxies will be 
solicited by the management. 

A variation of the above form is the inclusion of 
a box on the inside cover, like the following: 



NOTICE TO COMMON STOCKHOLDERS 

It is expected that on or about June 1, 19 — , a 
proxy statement will be sent, and that proxies 
for use at the Annual Stockholders' Meeting 
will be requested from Common Stockholders. 



The American Encaustic Tiling Co. included 
a slip with the report which read: "A summary 
account of any matters of importance or general 
interest which may transpire at the stockholders' 
meeting will be available thereafter to inquiring 
stockholders on request." (See Chapter 18 for 
discussion of reporting to stockholders on stock- 
holders' meetings.) 

STATEMENTS INFLUENCED BY 
SECURITIES EXCHANGE ACT OF 1934 

Under the rules of the Securities Exchange Com- 
mission (Reg. X-14) , before a proxy may be so- 
licited from stockholders for an election of direc- 
tors, stockholders must be furnished with an an- 
nual report containing financial statements for the 
last fiscal year. Copies of the annual report to 
stockholders must be mailed to the Commission 
in order that it may check compliance with the 
rule. The Commission does not consider the 
annual report to be proxy-solicitation material 
"filed" with the Commission or subject to the 
proxy rules or to the liabilities of Section 18 of 
the Act, except in cases in which the corporation 
specifically requests that it be treated as part of 
the proxy-soliciting material or in cases in which 
it is incorporated in the proxy statement by refer- 
ence. This rule pertains whether the annual re- 
port is sent to the stockholders and to the Com- 
mission in advance of the proxy statement or with 
it. (SEC release No. 3380, 2/5/43.) 

The following statement may be used, if rec- 
ommended as pertinent by the company's attor- 
ney, where the annual report is mailed prior to 
the solicitation of proxies. 1 
30 



Proxies for the annual meeting of stockholders, to 

be held , 19 — , will be requested later and the 

mailing to stockholders of the notice of meeting, 
proxy statement and proxy will be started on or about 

, 19—. This annual report is not sent to you in 

connection with the solicitation of proxies for the 
annual meeting, is not additional material relating 
to the same meeting and is not to be deemed to be 
incorporated in the proxy-soliciting material by ref- 
erence or to be a part of the proxy statement to be 
sent to stockholders pursuant to Regulation X-14 pro- 
mulgated by the Securities and Exchange Commis- 
sion under the Securities Exchange Act of 1934. 

The proxy statement, in instances where the 
above form is used, might state: 

The mailing to shareholders of the annual report 

of the Company containing financial statements 

for the fiscal year ending , — was begun on 

, 19 — , and such annual report is not incorpo- 
rated in this proxy statement by reference and is not 
to be deemed to be a part of the proxy soliciting 
material. 

A simpler form that has been used, reads: 

This report is sent to stockholders of the company 
in advance of the solicitation by the management of 
proxies lor the annual meeting of stockholders to be 

held , 19 — . Proxies will be solicited, and a 

proxy statement will be sent to stockholders at a later 
date commencing on or about , — . 



STATEMENT INFLUENCED BY 
SECURITIES ACT OF 1933 

The Securities Act of 1933 requires that before 
new offerings of securities may be made to the 
public through the mails or through the channels 
of interstate commerce, the securities, with cer- 
tain exceptions, must be registered with the Se- 
curities and Exchange Commission by the filing 
of a registration statement. This statement must 
contain certain specified details regarding the se- 
curities, calculated to enable the buying public to 
judge the value of the security offered. The Act 
also requires the use of prospectuses containing 
information similar to that contained in the regis- 
tration statement. Civil liabilities and criminal 



1 The above form was set forth in "Outline of Lecture on 
Solicitation of Proxies" by Arthur H. Dean, Esq., and is repro- 
duced with permission in the Prentice-Hall Securities Regula- 
tion Service. 



WHAT TO COVER IN THE ANNUAL REPORT 



penalties are imposed for noncompliance with 
registration and prospectus requirements. 

Because of these stringent regulations about 
selling, some companies, under advice of their at- 
torneys, take the precaution of including a state- 
ment such as the following on the inside cover or 
title page of the annual report: 

This report, including the financial statements con- 
tained herein, is submitted for the general informa- 
tion of the stockholders of the Company as such, and 
is not intended to induce, or for use in connection 
with, any sale or purchase of any securities of the 
Company. It is not furnished and is not to be used 
as a prospectus, representation or statement to any- 
one in respect of any security at any time. 

A briefer statement, such as the following, may 
be used: 

This report and accompanying financial statements 
are submitted for information of stockholders, and 
are not intended for use in connection with any sale 
or purchase of, or any offer or solicitation of offers to 
buy or sell, any securities; neither do they constitute 
part of any proxy-solicitation material. 



FINANCIAL STATEMENTS 

The annual report invariably presents the follow- 
ing financial statements: (1) Balance sheet, (2) 
income statement and (3) statement of surplus 
(if this data is not combined with the income 
statement) . 

These financial statements are the raison d'etre 
of the annual report. They may be required by 
the laws under which the corporation is organized, 
by an exchange on which the corporation's securi- 
ties are listed, by the Securities and Exchange 
Commission, or by the by-laws of the corporation. 
The company's accounting officers and the audi- 
tors will usually see that the statements meet all 
of the requirements. 

The financial statements should not be treated 
as of secondary importance merely because they 
are prepared separately and are submitted as "fin- 
ished" some time near the deadline of the report. 
The major part of the report should be an inter- 
pretation of the statements to the reader. The 
story, to be sure, can be told adroitly in the nar- 
rative, charts, graphs, pictorial illustrations, and 
highlighted bits of statistics— so skilfully told, in 
fact, that a stockholder can get the entire signifi- 



cance of the financial statements without looking 
at them. 

Nevertheless, the financial statements, as such, 
should be called to his attention. But calling at- 
tention to a balance sheet, income statement, and 
statement of surplus that is intelligible only to ac- 
countants, financial experts, and others trained in 
accounting terminology, is neither wise nor help- 
ful to good stockholder relations. For this rea- 
son, progressive corporations have given close at- 
tention to simplifying their financial statements. 
They recognize, however, that a balance sheet and 
income statement that is simple enough to be un- 
derstood by the lay reader will not provide all 
the information expected by the trained analyst. 
Many annual reports consequently present ac- 
counting data in two forms. The first is a set of 
simplified, interpreted financial statements that 
frequently appear in or adjoining the narrative 
section. The financial statements are then pre- 
sented again, more completely, in the formal bal- 
ance sheet, income statement and statement of sur- 
plus that usually follow the narrative. 

It is entirely possible, in some instances, to pre- 
pare one set of simplified financial statements that 
satisfy both the nonprofessional investor and the 
financial expert. In other cases — for example, 
railroad companies — it is utterly impossible to do 
so. The accounting data must be presented in 
two distinct forms, a simplified form and a con- 
ventional form. 

The techniques that have been used in mak- 
ing financial statements more understandable are 
treated fully in Chapter 14. 



GREATER DISCLOSURE NEEDED 

The basic rules in presenting financial statements 
should be: (1) Reveal all material facts, (2) in- 
dicate the accounting practices used, (3) explain 
the nature of any changes in accounting principles 
and their application. If this general rule were 
seriously observed by all corporations, financial 
statements would be less open to the criticism of 
inadequate disclosure than they now are. 2 



2 A report of the Securities and Exchange Commission to 
Congress in June 1946, urging amendment of the Securities Ex- 
change Act of 1934 to extend to investors in unregistered se- 
curities, shows how backward many companies are in their 
financial reporting. 

The SEC studied the annual reports of seventy companies 
having 300 or more stockholders and $3,000,000 or more of total 
assets. It found the following deficiencies: 

31 



WHAT TO COVER IN THE ANNUAL REPORT 



Here are some of the balance-sheet deficiencies 
in current reporting practices: 3 

1 . Many companies still do not offer comparative 
statements. 

2. Full information on investments in securities 
of subsidiaries is frequently lacking. 

3. The reserve for doubtful accounts receivable 
is not always indicated as a separate figure. 

4. Additional data on inventory valuation is nec- 
essary in many instances. 

5. Schedules showing what items make up the 
property, plant and equipment account are 
offered in too few reports. Similarly, sched- 
ules showing the allocation of the provision 
for depreciation to the various fixed assets are 
lacking. 

6. The nature of deferred charges is not dis- 
closed in many cases. 

7. In reporting on indebtedness, insufficient in- 
formation is given on due dates and the assets 
pledged against the debt. 

8. The capital-stock section is too indefinite as to 
shares authorized and outstanding, par value 
and stated value, and the characteristics of 
preferred stock. 

The deficiencies in income statements are even 
more pronounced, for very few companies give 

1. A substantial number failed to file a full set of financial 
statements — balance sheet, income statement, and statement 
ol surplus. 

2. Slightly more than half of the balance sheets were materially 
deficient when compared with the reporting requirements 
of the 1934 Act. 

3. About 13% furnished no income statement at all and no 
statement of surplus. 

4. About 34% of those which gave an income statement did 
not disclose the amount of sales or cost of goods sold. 

5. In some instances, improper and unsound accounting prac- 
tices were revealed. 

6. Xo company presented all the footnotes that would have 
been required in a filing with the Commission. 

7. Most of the reports were accompanied by a president's letter 
that merely repeated financial facts appearing in the finan- 
cial statements. 

8. 90% of the financial statements were certified by public 
accountants or certified public accountants, showing that 
certification is no assurance of reasonably adequate infor- 
mation. 

It must be remembered, however, that very few companies 
that file financial statements with SEC give equally comprehen- 
sive information in their annual reports to stockholders. Some 
of the deficiencies noted above, therefore, are exaggerated. Ac- 
countants who do not consider the form of report to SEC the 
ultimate of perfection in financial statements, consider the SEC 
criticisms unwarranted. 

3 See "Current Practice in Disclosure of Information in Finan- 
cial Statements," by Charles S. Rockey, Journal of Accountancy, 
Sept. 1947. 

32 



a breakdown of the cost of sales. Many income 
statements open with "Net operating profits be- 
fore taxes." The reason usually given for with- 
holding information on costs of goods sold and 
other operating costs is: "You can't make that in- 
formation available to competitors." But why 
not? The harm may be more imaginary than 
real. Companies that once hesitated to breathe 
a word about directors' and officers' salaries have 
been reporting fully on such costs to the Securities 
and Exchange Commission and in proxy state- 
ments. They have not suffered from the disclo- 
sure. The companies in competitive fields that 
have been giving full financial data year in and 
year out — and a number have — apparently have 
not been hurt by the practice. Besides, isn't it 
true that competitors usually get to know the 
other fellow's costs of doing business by the "grape- 
vine" method? The figures might just as well be 
published. If it became universal practice to re- 
port the costs of goods sold and show the break- 
down, no one would have an advantage over any- 
one else. 

For ideas for reporting fully on costs of doing 
business, see page 73. 

IDEAS FOR BETTER 
FINANCIAL REPORTING 

Those who use the annual report to rate the com- 
pany for investment or credit purposes will focus 
their attention upon the auditor's financial state- 
ments. Although all corporations are not essen- 
tially concerned with serving this group, it is true 
that what serves them may also serve the stock- 
holders and others interested in the report. The 
recommendations for better financial reporting 
that are made in the following pages have, there- 
fore, all groups of readers in mind. 

OFFERING 

COMPARATIVE STATEMENTS 

Corporate executives do not have to be told the 
advantages of comparative financial statements. 
They prepare and use them for managerial pur- 
poses; they require them in testing the financial 
standing; of those who seek credit from them. Yet 
they are lax in offering comparative figures in 
their own annual reports. Out of a group of one 
hundred recent annual reports (industrials, rail- 
roads and public utilities), selected at random, 
only forty-six gave dollar comparisons with the 



WHAT TO COVER IN THE ANNUAL REPORT 



previous year, eight showed dollar increases or de- 
creases in addition to the previous year's figures, 
one gave percentage comparisons, and twelve gave 
figures for more than two years in statistical sum- 
maries. 

Those responsible for getting out the corporate 
annual report reason thus, apparently, in omitting 
comparative data: (1) The current year's figures 
are sufficient to show what happened during the 
year, (2) stockholders do not bother to make com- 
plete financial analyses and therefore giving them 
comparative figures is a waste of effort, (3) any- 
one really interested in comparative figures would 
keep the previous year's reports and make the 
comparison himself, (4) too much is told if com- 
parative figures are given. 

This type of reasoning makes for distrust by the 
general public and hurts stockholder relations. 
The reporting company should want to offer com- 
parative statements because: 

1. The practice gives stockholders and others 
who see the report the impression that the 
company is hiding nothing, and it helps to 
break down public distrust of published fig- 
ures. 

2. Distorted impressions may be received from a 
single year's statements if comparative figures 
are not given. Businessmen should aim to 
prevent misinterpretation of figures. 

3. For financial analysts, the annual report is the 
first and best source of information. The 
analyst looks for comprehensive informa- 
tion and comparative statements. By offer- 
ing complete financial data, the corporation 
helps build goodwill among a group of people 
who rate the company's securities and com- 
ment upon its prospects. 

COMPARATIVE AND 
ANALYTICAL DATA 

The following list of ways in which comparative 
and analytical data might be given is based upon 
an examination of the most comprehensive re- 
ports that have been distributed to stockholders. 

1. Give dollar figures for the current year and 
preceding year in the balance sheet and in- 
come statement. The usual way is to present 
two columns of figures, one for each year. 
A novel way is to print the previous year's 
figures in red, using small type, immediately 
below the current year's figures. 



2. Same as (1) , but in addition show increases 
in an "Increase" and decreases in a "Decrease" 
column. If one column marked "Increase or 
Decrease" is used, identify the figures repre- 
senting decreases. Print them in italics with 
an asterisk (*) or capital "D" or capital "I" 
before or after the figure, or use plus and 
minus signs. 

3. Same as (2) , but in addition show the per- 
centage increase or decrease in each item over 
the previous year. These figures are known 
as analytical per cents of the horizontal type. 
If the pages are to be printed in two colors, 
the second color can be used to draw attention 
to either increases or decreases. 

4. Same as (1) . In addition, in the balance 
sheet show for each year the percentage that 
each item bears to the balance-sheet total, the 
latter representing 100%. In the income 
statement, show the per cent of each item re- 
lated to the net sales, the latter representing 
100%. These figures are analytical percent- 
ages of the vertical type — so called because the 
per cents apply to related amounts usually 
shown in a column. 

5. Same as (1) . Then show the relationship of 
the later amount to the earlier amount by ra- 
tios. These ratios are obtained by dividing 
the amount for the later date or period by 
the amount for the earlier date or period. 
The ratios are expressed as a percentage or 
decimal, thus: 



December 31 



Cash 

Receivables 



7947 

6 8,000.00 
21,000.00 



7 946 

$20,000.00 
15,000.00 



7 947 Ratio 
to 1946 

40% or .40 
140% or 1.40 



This use of ratios is rare in annual reports to 
stockholders. Nevertheless, it has the follow- 
ing advantages over showing the percentage 
of increase or decrease between the figures 
compared: 

(a) Where percentage of increase or decrease • 
is used, a distinction must be made by 
italics and other marks to distinguish a 
decrease from an increase. Italics are 
avoided in the use of ratios since they 
are all on a common base — the ratio of 
the later amount to the earlier one. 

(b) The ratio comparison may be easier to 
grasp than the percentage of increase or 
decrease where large per cents are shown. 

33 



WHAT TO COVER IN THE ANNUAL REPORT 



For example, where an item has increased 
from $100,000 to $1,500,000, the per- 
centage of increase would be shown as 
1400%. The ratio can be shown as 15. 
It is easier to sense the change if one 
reads that an item is 15 times as large as 
another item than if one has to mull over 
the meaning of a 1400% increase. 

6. Give comparative balance sheets and income 
statements for a five-year or ten-year period. 
Such statements are usually given only in 
dollar figures. 

7. Give statistical tables covering a number of 
years for various subjects reported upon. 
These tables are amply illustrated in the ideas 
for statistical presentations that will be found 
in Chapters 5 through 12. See "especially 
pages 40 et seq. and HG.et seq. 

8. Use charts, graphs and pictorial illustrations 
to show comparisons, trends and develop- 
ments over a period of years. See page 204. 

MAKING STATEMENTS 
TRULY COMPARABLE 

Whenever comparative statements are offered in 
the annual report, care should be taken to see 
that the items and amounts are truly comparable. 
Too often the comparative statements consist of 
summaries of data originally reported for each of 
the years and do not reflect adjustments later de- 
termined to be applicable to those years. 

The following situations may call for adjust- 
ments or explanations before figures for later years 
can be accurately compared with those of earlier 
years. 

1 . An unusual item of a nonrecurring nature 
may be reflected in the figures for a particular 
year. For example, a refund of Federal taxes, 
a loss by fire or other casualty, settlement of a 
lawsuit, collection of a claim against the gov- 
ernment. Such items should have attention 
called to them. 

2. A change in capitalization. For example, if 
earnings per share of common stock are shown 
in a comparative statement and in one year 
they were based on 200,000 shares of stock 
outstanding and in another on 400,000 be- 
cause the shares had been split two for one, 
the data is not comparable. An explanation 
of the change is essential to a correct interpre- 
tation of the figures. 

34 



3. A change in accounting treatment or classifi- 
cation. For example, in one year tax-refund 
bonds may have been shown among "Other 
Assets" because the amount was insignificant. 
In the following year, tax-refund bonds may 
have been included in "Investments" because 
the amount was large. Adjustment is neces- 
sary for -a true comparison. 

4. A change in terminology or form of the finan- 
cial statements. At page 178 reference is 
made to a radical change made by Caterpillar 
Tractor Co. in the form of its published bal- 
ance sheet. The balance sheets for previous 
years had to be converted to the new set-up to 
permit ready comparison with earlier years. 

5. Changes in tax laws, government regulations, 
methods of operation and the like. A year 
that has been marked by drastic changes — for 
example, conversion of an entire plant, in- 
volving stoppage of operations — is not a nor- 
mal one. Such abnormal years? must be con- 
sidered when comparisons are made. 

In the case of consolidated financial statements, 
not only may the above influences have to be con- 
sidered for each individual company in the con- 
solidated group, but the following conditions may 
also call for adjustment or explanation to assure 
comparability: 

1. Do all the companies included in the consoli- 
dated statements have the same closing dates 
for the balance sheets or the same accounting 
periods for the income statement? 

2. Do the accounting classifications differ in the 
various units? 

3. Is there uniformity of treatment of similar 
items in the separate companies? 

4. Are the principles of valuation applied to 
property, inventories, securities and other as- 
sets different among the various subsidiaries? 

What adjustments and explanations should be 
made to insure comparability is usually left to the 
controller and accountants. The methods, how- 
ever, are generally the following: 

1. The figures originally reported are revised to 
permit comparison. 

2. If changes cannot be incorporated into the 
comparative data, items requiring explana- 
tion are called to the attention of the reader 
by notes. These notes are usually explained 
at the close of the statements. 



WHAT TO COVER IN THE ANNUAL REPORT 



3. Explanations are given in the narrative por- 
tion of the report to show influences that af- 
fect true comparisons. 

HELPFUL RATIOS 

We referred previously to ratio comparisons be- 
tween the current year's figures in the financial 
statements and those for the preceding year, as a 
means of pointing out changes. Here we refer to 
ratios of an analytic nature, ratios that show a 
comparison of specific items or groups of items to 
determine whether accounts receivable, fixed as- 
sets, accounts payable, sales, costs of operation and 
profits are in satisfactory relationship to other re- 
lated items. Such ratios are used in credit and 
investment analysis. 

Dun & Bradstreet, Inc., annually publishes 
tables showing fourteen important ratios over five- 
year periods for some seventy-two different lines 
of industry and commerce, including manufactur- 
ers, wholesalers, and retailers. These ratios °ive 
a fairly wide basis of comparison in analyzing 
statements for companies in the lines covered. 
Executives may want to consider presenting some 
of these ratios in their annual reports. 

1. Three important capital ratios: 

(a) Fixed assets to tangible net worth (per 
cent). 

(b) Total debt to tangible net worth (per 
cent). 

(c) Net working capital represented by 
funded debt (per cent). 

2. Three important inventory ratios: 

(a) Net sales to inventory (times). 

(b) Net working capital represented by in- 
ventory (per cent). 

(c) Inventory covered by current debt (per 
cent). 

3. Three important sales ratios: 

(a) Average collection period (days). 

(b) Turnover of tangible net worth (times). 

(c) Turnover of net working capital (times). 

4. Three important net profits ratios: 

(a) Net profits on net sales (per cent). 

(b) Net profits on tangible net worth (per 
cent). 

(c) Net profits on net working capital (per 
cent). 

5. Two important supplementary ratios: 

(a) Current assets to current debt (times). 

(b) Total debt to tangible net worth (per 
cent). 



t 



These ratios are discussed in Practical Bank 
Credit by Prochnow and Foulke, published by 
Prentice-Hall, Inc. 

Most corporations have not, up to now, consid- 
ered it necessary to offer in the annual report any- 
thing more than the following three ratios: 

1. Operating ratio. This ratio shows the rela- 
tionship of operating expenses to gross in- 
come. It is usually found in railroad and 
public-utility reports, rarely in industrial re- 
ports. 

2. Working-capital ratio. This ratio, sometimes 
called "current ratio," is found by dividing 
the total current assets by the current liabili- 
ties. The quotient shows how many dollars 
of current assets there are for each dollar of 
current liabilities. This working-capital ra- 
tio is generally included in the comments 
upon the financial condition of the company, 
in the balance sheet or in statistics of prog- 
ress. For example, see page 119. 

3. Quick ratio. In this ratio, instead of divid- 
ing the total current assets by the current 
liabilities, inventories and other nonliquid 
items are omitted from the current assets and 
only the total of the cash, receivables and 
marketable securities (quick current assets or 
"dollar" assets) is used as the numerator of 
the fraction. Some corporations give this ra- 
tio in addition to the working-capital ratio or 
instead of the working-capital ratio, in the 
comments upon financial condition. 

In exceptional cases, additional ratios are of- 
fered in the annual report. An example is given 
at page 117. 

THE AUDITOR'S REPORT 

One portion of the annual report that has not re- 
ceived sufficient attention from the modernizers 
is the independent auditor's report that usually 
follows the financial statements. The editors of 
The Journal of Accountancy suggested in the 
April 1947 issue: "Perhaps management should 
devote some space in the text of the report to a 
discussion of the value of the independent audit 
to the stockholders who receive it." The maga- 
zine offered the following suggested paragraphs 
for this purpose: 

Your company has retained certified public ac- 
countants to conduct an independent audit of the 

35 



WHAT TO COVER IN THE ANNUAL REPORT 



financial statements which arc reproduced in con- 
junction with this report, together with the auditors' 
report of their findings. 

The auditors do not guarantee the financial state- 
ments; they are not insurers. But l hey are experts 
who are entirely independent of the management. 
The purpose of their work is to test the validity of 
the company's accounting and check the judgment of 
the management in presenting its financial position 
and results of operations in accordance with gener- 
ally accepted accounting principles. Stockholders 
should read and consider what the auditors say. 



Such a statement would eliminate any miscon- 
ception that the auditors' report guarantees the 
financial statement, and it would probably be 
read by more stockholders than read the auditors' 
report. 

TABLE OF CONTENTS- 
INDEX 

A good report deserves a table of contents regard- 
less of the size of the report. Of course, the big- 





TABLE 


OF 


CONTENTS 




WHAT A.H.P. DOES 








HOW A.H.P. LOOKS 








Pages 




Pages 


1. For Stockholders 




4 to 


13 


Full Page Photographs 




2. For Employees 




14 to 


19 


Management in Action 
Nerve Center of A.H.P. 


7 
15 


3. For Consumers 




20 to 


61 


Life for the Wounded 


21 


Pharmaceuticals, Biologic ah 








Beginning of a New Hormone Product 


27 


and Nutritionals 




23 to 


31 


For Healthier Babies 


33 


Color and Dye Products 






32 


Wax on the Production Line 


39 


Food Products 




33 to 


38 


Our Cosmetics in Use 


45 


Household. Products 




39 to 


44 


Dentifrices in Production 


49 


Cosmetic Products 




45 to 


48 


Hoist Away! 


55 


Packaged Drug Products 




49 to 


54 






Foreign and Export 




55 to 


59 


Full Page Graphics 




Advertising and Sales 




60 to 


61 


Foreign and Domestic Operations 




WHAT A.H.P. IS— IN BRIEF 








(maps) hiside front 


cover 


Message from the 








A.H.P. Income Dollar— 4944 


8 


Chairman of the Board 




4 and 5 


How A.H.P. Is Managed 


16 










Toward Better Health 


22 


Fact Boxes 








Toward Constant Growth 


28 


Things You Should Know About A.H.P. 


3 


Toivard Better Homemaking 


34 


Financial Facts 






6 


Toward Better Distribution 


40 


Employee Facts 






14 


Toward Better Styling 


46 


Consumer Facts 






20 


Safeguarding Whitehall Products 


50 


Statistics, Lists and 












Other Essential Data 








Text Charts 




Financial Record on Per Share 


Basis 




13 






Lists of Companies and 
Principal Products 
List of Radio Programs 








Gross Sales over 10-Year Period 


10 












31, 38, 


44, 48, 


54 


Income Record in 10-Year Period 


12 






54 


Group Insurance Benefits to Employees 


18 


Foreign Operating Companies 






56 






List of A.H.P. War Products 






56 


A.H.P. in Pictures 




Financial Statistics 




62 to 


67 






Stockholder Groupings 




68 to 


69 


News Photo section 71 


to 78 


Officers, Directors and Comrni 


ttees 




70 


Product pictures Inside back 

[American Home P 


cover 

roductsi 



36 



WHAT TO COVER IN THE ANNUAL REPORT 

ger the report the more essential a table of con- culled from various parts of the report, such as 

tents. pictures, charts and the like. This method is 

Tables of contents are generally of three types: illustrated in the Table of Contents of an 

.... r , ,. . . American Home Products Yearbook, which is 

1. A listing of the subiect matter in page order, , , or 

. , i ,• reproduced on pas:e 35. 

with no center headings. r r ° 

2. A listing of the subject matter with center A table of contents is usually adequate for lo- 
headings that show such groupings as Opera- eating material in the annual report. A very 
tions and Activities, Financial Review, State- long report, however, should have an alphabetical 
ments. index at the back. Do not call any listing of con- 

3. The same as (2) plus other groupings of items tents an index unless it is an alphabetical listing. 



37 



SHOWING RESULTS 
AT A GLANCE 



CHAPTER 4 



The following methods are used for showing re- 
sults of the year's operations at a glance: 

1. Management selects the most important parts 
of the report and highlights them with brief 
statements supported by figures. 

2. The outstanding developments in the affairs 
of the company for the year are listed; not a 
single supporting figure is given. 

3. A summary statistical table of items that re- 
flect the year's accomplishments is presented. 
See page 212 for periods generally compared. 

4. A group of important facts and figures that 
reflect progress is selected and presented in 
pictorial graphic form. 

HIGHLIGHTS 

A number of items taken from reports that high- 
light events of the year are reproduced below. 1 
They have been chosen to illustrate the type of 
item selected and to show what is considered suit- 
able treatment in a highlight. 

Production 

Production in 19 — was adversely affected by the 
strike against and by material short- 
ages resulting, for the most part, from strikes in sup- 
pliers' plants. Virtually no cars or trucks were pro- 
duced in the first quarter of the year. Production in 
the second quarter was — % of the average 19 — rate; 
in the third, — %; and in the fourth, — %. 

* # # 

Average price of the company's products during the 
— years ending December 31, 19 — rose less than — % 
over the 19 — average. 

Surveys show that — % of all homes and farms in 
the general area served are now enjoying electric 
service. 



A total of — extensions were built in 19 — to bring 
the benefits of low-cost electric service to — new 
customers. 



1 National Gypsum Co., Blaw-Knox Co., A. E. Staley Manu- 
facturing Company, Tilo Roofing Co., Inc., General Motors 
Corporation, Puget Sound Power & Light Co., Allegheny Lud- 
lum Steel Corporation, American Home Products Corporation, 
Canada Dry Ginger Ale, Incorporated. 

38 



Sales 

Sales of .$- 

by $ , a — % increase, and 

company's best pre-war year. 

Earnings 

Earnings for the year represented 
common stock, as compared with $ 
year. 



for the year exceeded those of 19 — 
% ahead of the 



f — per share of 
— the previous 



Net income advanced to $- 
over 19 — . 

Expansion of Research 
More than $- 



-, an increase of $- 



were spent on new construction, 
plant additions and improvements during the year. 



Carrying forward our projected program for ex- 
panded service, new branches were opened in , 

, and . This increased our total number of 

branches to — . 



Net additions to property, plant and equipment 
amounted to $ during 19 — , reflecting the begin- 
ning of a program of expansion and improvement 

which may involve an expenditure of $ to $ 

within the next two or three years. 



Research activities were nearly doubled in 19 — , 
and a number of new products were introduced. 



Foreign licensees at present include 24 active bot- 
tlers, operating in various countries. An additional 
number are ready to begin operations as soon as ma- 
chinery can be secured. 






SHOWING RESULTS AT A GLANCE 



Financial 

The ratio of current assets to current liabilities on 
December 31, 19 — was — to 1, based on current assets 
of $ and current liabilities of $ . 

The working capital has decreased from $ — — on 



December 31, 19 — to 



on December 31, 19 — 



due to the redemption of the preferred stock. 

# * # 

At the end of the year inventories were about $ 

lower than at the end of 19 — , leaving inventory on 
hand equal to about — weeks of sales. 



Wage, salary, and pension payments for the year 

amounted to $ , or — cents out of each revenue 

dollar for the year. This compares with $ in 

19 — , or — cents from each revenue dollar. 



Wages and salaries paid during the year amounted 
to$ . 



Labor relations were good. There were no work 



stoppages. 



Working capital increased by $- 
to S at the year-end. 



and amounted 



Balance sheet assets as of December 31, 19 — 

amounted to S , an increase of $ over a year 

ago. 

# # # 



During the year, shares of preferred and 

shares of common stock were sold for $ . 



On 



19 — , the Company sold S- 



of & 



promissory notes to eight insurance companies. On 

, 19 — , it sold — shares of preferred stock to a 

nationwide group of underwriters for a total of $- 



Proceeds of the sales are being used for plant and 
expenditure and to meet increased working capital 
requirements. 



Taxes 

Taxes payable for the year 19 — totaled $ , an 

increase of $ or — % over 19 — . These pay- 
ments of Federal, State and local governments ex- 
ceeded the total amount of payroll charged to op- 
erating expenses. 



The Company's taxes for 19 — , as shown in the 
Income Statement, were — cents of each dollar of 
operating revenues, amount to $ — per employee, and 
to $ — per share of Common Stock, or more than — 
times the net earnings per share of Common Stock. 



Taxes provided for in 19- 
compared to $ in 19 — . 

Stockholders 



amounted to 



The preferred stock was retired on December 1, 
19 — , at | — per share, leaving common stock as the 
sole outstanding security of the company. 



The stockholders' investment in the Company 

amounts to $ , or $ — per share at December 31, 

19 — , an increase of $ — per share for the year. 



During the year the Company sold 



$4.25 Cumulative Preferred Stock, the proceeds from 
which will be used for new building and expansion 
of both the carbonated and alcoholic beverage busi- 
ness. This stock was first offered to Common stock- 
holders of the Company, and — % of the entire issue 
was taken under the warrants granted to them. 



Stockholders numbered as of December 31, 

shares of 19 — , with no one individual holding more than — % 



of the common shares outstanding. 



A total of 



shares of common stock was out- 



standing on December 31, 19 — , as compared with 
at the end of 19 — . 



Employment and Wages 

The average number of salaried and hourly-rate 
employees on the payrolls in 19 — was , com- 
pared with in 19 — . Total payrolls were $ , 

compared with $ in 19 — . 

New wage scales were adopted, increasing hourly 
rates in both and plants by — cents. 



Dividends 

A conservative dividend policy was followed in 
view of the substantial modernization and expansion 
program. A share-for-share stock dividend in com- 
mon stock was issued to common stockholders. In 
addition to dividends on preference stock, cash divi- 
dends equal to $ — per share on the outstanding 
common stock were paid. 

39 



SHOWING RESULTS AT A GLANCE 



IDEAS FOR 

CHARTS AND GRAPHS 

A year's progress can be shown effectively through 
pictorial graphs such as are illustrated at pages 43 
et seq. 

IDEAS FOR 

STATISTICAL SUMMARIES 



a glance through statistical 



To show results at 
summaries, management selects the important fig- 
ures in the financial statements. Other figures 
may be compiled especially for the report. A 
number of examples are given below. Additional 
ideas for statistical summaries are given in Chap- 
ter 9. These summaries do not take the place of 
simplified financial statements, discussed in Chap- 
ter 14. 



RESULTS AT A GLANCE FOR 19- 

Net sales $ 

Net profits 

Net income per share 

Taxes 

Taxes per share 

Dividends 

Dividends per share 

Dollar sales increase over 1 9 — 



SUMMARY OF 


OF 

$ 

$ 

Sh 
on 


'ERA! 
19- 

are 
Stock 


IONS 

19— 

$ 

$ 

Per Share 
Preferred Stock 
$ 


Uncompleted Orders, Decem- 
ber 31 

Net Income before Federal Tax 


Appropriation to Reserves . . . 
Net Income carried to Surplus 


Dividends Declared and Paid: 




Per 
Dividends Paid Comm 
March 20,19— $ 
June 20, 19— 
September 20, 1 9— 
December 20, 1 9— 


Total for Year $ 






S 



HIGHLIGHTS OF THE YEAR'S OPERATIONS 


VOLUME OF BUSI- 
NESS 
Orders Received . . . 
Sales Billed 


$ 


19— 


19 — Increase % 

$ % 

% 


PROVISION FOR 
TAXES 
Federal Taxes on In- 






% 

% 
% 


All Other Taxes 

Total Taxes for Year . 


PROFITS AND DIVI- 
DENDS 
Profit Before Provision 
for Federal Taxes on 














% 

% 
% 


Profit Available for 
Dividends Declared . 


EMPLOYEES AND 
THEIR EARNINGS 

Number of Employees 
December 31 .... 

Averase Number of 
Employees 

Total Earnings of Em- 


$ 
$ 




% 

% 

$ % 

$ % 


Average Annual Earn- 
ings per Employee 



19— REPORT IN BRIEF 
COMPARED WITH 19— 



19— 



19— 



Total business done $ 

Total costs of doing business: 

19— 19— 
Wages-salaries $ $ 

Taxes 

Other costs . . 

$ 

Net earnings $ 

Paid in dividends to stockholders $ 



SUMMARY 



19- 



19— 



Sales $ 

Total Income $ 

Net Income $ 

Net Income per Share 

On shares $ 

On shares 

Dividends $ 

Current Assets $ 

Current Liabilities $ 

Earned Surplus S 

Stockholders 



40 



SHOWING RESULTS AT A GLANCE 



COMPARISON OF THE COMPANY'S 
BUSINESS FOR 19— AND 19— 



Net Sales; 

Dollars (net) $ 

Tonnase 

Price realized per ton $ 

Per share of stock $ 

Net Profit: 

Total $ 

Percentage of sales 

Per share of stock $ 

Dividends: 

Total $ 

Percentage of net profit 

Per share of stock $ 

Number of stockholders 

Wages and Salaries: 

Total $ 

Percentage of sales 

Average number of employees 

Direct Taxes: 

Total $ 

Per share of stock $ 

Percentage of dividends .... 

Percentage of net profit 

Per employee $ 

Break-down of Direct Taxes: 

Federal taxes $ 

Foreign taxes 

Social Security taxes 

Property taxes 

Franchise taxes 

Miscellaneous direct taxes . . . 

Total Direct Taxes S 



19— 



tons 



per cent 



per cent 



per cent 



per cent 
per cent 



19— 



tons 



per cent 



per cent 



per cent 



per cent 
per cent 



19— IN BRIEF 





19— 


19— 


19— 


Operating revenues 

(millions of dollars) 








Operating expenses 
(millions of dollars) 


Operating ratio . . 



Net operating 
revenues 

(millions of dollars) 

Taxes 

(millions of dollars) 

Net income 

(millions of dollars) 

Dividends 

(millions of dollars) 

Revenue ton miles 
(millions) 

Revenue per ton 

mile 

(cents) 

Wages 

(millions of dollars) 

Earnings per com- 
mon share 

(dollars) 

Taxes per common 
share 

(dollars) 

Dividends per com- 
mon share 

(dollars) 

Times fixed charges 
earned 



19— 

AT A GLANCE 

COMPARED WITH 19— 

From the sale of goods and services, we received 

To run our business, pay our employes and buy goods, and provide reserves, cost us 

This left, before Federal income taxes 

To pay Federal income taxes (our contribution to the cost of Government) 

This left net income of 

or in per cent of sales 

Preferred shareholders received 

Common shareholders received ($ — per share, the same as last year) 

This left earnings in excess of dividends paid, which have been retained in the business for 
use in financing the future growth of 



19— 



19— 



41 



SHOWING RESULTS AT A GLANCE 



EXCERPTS FROM 
GENERAL SUMMARIES 

The excerpts given below illustrate statements 
that sum up briefly a year's activities and manage- 
ment's estimate of the accomplishment. Such 
statements usually appear at the opening or clos- 
ing or the president's letter. They gain interest 
by omitting statistics and by showing management 
objectives. 



General Review 

In 19 — , the huge backlog of unsatisfied consumer 
wants and needs following the war years, coupled 
with high purchasing power, created the greatest 
peacetime demand ever experienced for the products 
of industry as a whole. Likewise, demand for the 
Company's products, as well as its total production 
volume, far exceeded that of any previous peacetime 
year. A higher volume of production and sales 
would have been possible and our customers' needs 
could have been more fully satisfied had it not been 
for the effect of nationwide labor disputes. Existing 
shortages of critical materials were aggravated by this 
condition which frequently resulted in prolonged 
interruptions to our supply. Moreover, additions 
to our manufacturing capacity were delayed many 
months due to shortages of construction materials 
and strikes in plants producing manufacturing equip- 
ment. The cost of these plant additions was greatly 
increased and, consequently, some building projects 
were suspended or postponed. 

Raw material costs, manufacturing costs and selling 
and administrative expenses all increased sharply dur- 
ing the year, largely due to substantial advances in 
wage and salary rates not only for employes of the 
Company, but also for employes of all suppliers of 
goods and services. While permitting wages to rise, 
the Government maintained many wartime price con- 
trols throughout most of 19 — . Because of rising 
costs on one hand and rigid price ceilings on the 
other, it was impossible for the Company to show 
satisfactory earnings during the first nine months of 
the year. However, due to the relaxation and even- 
tual termination of price controls, profits in the 
fourth quarter were on a more normal basis in rela- 
tion to volume of production and reflect the expan- 
sion of the Company's business in broader chemical 
fields. [Atlas Powder Company] 



A best year 

From every point of view 19 — was Skelly Oil Com- 
pany's best year to this time. Never before were the 
Company's operating departments so well integrated 
and uniformly profitable, or its asset position so 
strong. The Company faces the normal competition 
of peace time with confidence that it will steadily 
improve its substantial and respected position in the 
petroleum industry. This further progress is as- 
sured by the Company's ample oil and gas reserves, 
its well balanced integration, its vigilant emphasis on 
profitable specialty products, the tested soundness of 
its basic policies, and, finally, by the outstanding abil- 
ity and zeal of the men and women who form its or- 
ganization. 

The Company intends to make sure that a profit- 
able past and a bright future shall not cause any re- 
laxation of effort to promote economy and efficiency 
in the Company's operations. That objective is held 
in constant view. 

In the hundreds of communities in which it does 
business, the Company tries to be a good neighbor, 
taking part in movements toward civic betterment 
and encouraging reasonable participation by its em- 
ployees in public affairs. 

Stockholders and their friends who reside in or 
travel through the territory served by Skelly stations 
are invited to favor the Company with their patron- 
age. [Skelly Oil Company] 

Mutual understanding of responsibilities 

We feel we have made progress. And we will be 
better prepared to meet the stiff competition a free 
market will inevitably bring if we constantly bear in 
mind that this test can be met successfully by the 
cooperation of all of us — stockholders, employees, 
management, and directors. A mutual understand- 
ing of the responsibilities and the rights of each 
group and an appreciation of the obligations we owe 
the public who are our consumers are the founda- 
tion on which the success of our Company, or any 
company, must be built. They are the foundation, 
too, of the well-being of that great community of us 
all which is our country. 

Results are achieved through the individual as well 
as the joint efforts of all of us who make up our Com- 
pany. Enthusiasm and diligence must be brought 
to the daily task. The awareness of this on the part 
of our employees has made possible our continued 
progress. [National Sugar Refining Company] 



42 



The Fisccsi Tecsr 
Itt Heview 



1945 • - 

JULY ... 9 DC-3 aircraft in revenue service. 

AUGUST ... 9 DC-3 aircraft in revenue service. 
V-J Day. Delta awarded Chicago-Miomi and 
Chicago-Charleston route. 

SEPTEMBER . . . 10 DC-3 aircraft in revenue 
service. 
'OBER ... n DC-3 aircraft in revenue serv- 
ice. Air priorities abolished. Preliminary 
preparation for inauguration of service on new- 
route award. 10% reduction of passenger 
fares. Purchase of first 2 DC-4's for conversion 
by Douglas Aircraft Company. 

NOVEMBER. . . n DC-3 aircraft in revenue 
service. Purchase of one more DC-4 for con- 
version. Intensified preparation for inaugura- 
tion of service on new route award. 

DECEMBER ... 12 DC-3 aircraft in revenue serv- 
ice. Inauguration of service between Chicago- 
Miami. Purchase of 3 more DC-4'i for con- 
version. Payment of Christmos bonus to all 
employees. 

1946 

JANUARY ... U DC-3 aircraft in revenue serv- 
ice. Purchase of one more DC-4 for conversion, 
completing Delta's fleet of 7. Establishment of 
40-hour work week for all employees. Com- 
mencement of training of personnel for DC-4 
operations. Reduction in Air Express rates. 

FEBRUARY . . . 14 DC-3 aircraft '.n revenue serv- 
ice. Receipt of first converted DC-4. Accel- 
erated personnel training program for DC-4 
Operations. 

mAKvM , , . 15 DC-3 aircraft in revenue service. 
Inauguration of DC-4 service with 2 planes. 

APRIL ... 15 DC-3 aircraft and 4 DC-4 aircraft 
in revenue service. Inauguration of service 
between Chicago and Charleston via the Pied- 
mont area. Beginning of establishment of 
maintenance base at Miami, Florida. 

WAY, , . 15 DC-3 aircraft and 6 DC-4 aircraft in 
revenue service. Purchase of an additional 
DC-3 aircraft for conversion by Delta, com- 
pleting the fleet of 16 planes. Completion 
of establishment of maintenance base at 
Miami, Florida. 

JUNE ... 15 DC-3 aircraft and 7 DC-4 aircraft in 

revenue service. Start of preparations for air 
freight service {began August 15, 1946). 




Fig. 2 



Courtesy, Delta Air Lines, Incorporated 



43 



A COMPARISON OF OPERATIONS IN 1944 AND IN 1945 



TOTAL 
REVENUE 
MILES 
FLOWN 



1944 



H 



MILLIONS OF MILES 5 10 15 20 25 30 35 40 



1945 



m 



REVENUE 

PASSENGER 

MILES 



1944 




MILLIONS OF MILES 25 50 75 100 125 150 175 200 



1945 




TOTAL 
REVENUE 
PASSENGERS 
CARRIED 



1944 




THOUSANDS OF PASS. 100 200 300 400 500 600 700 800 



EXPRESS 
CARRIED 



HUNDREDS OF TONS 5 10 15 20 25 30 35 40 



1945 




MAIL 
CARRIED 



1944 




HUNDREDS OF TONS 5 10 15 20 25 30 35 40 



INCREASE OF 



112% 



INCREASE OF 



112% 



INCREASE OF 



93% 




INCREASE OF 



58% 




INCREASE OF 



43% 



Courtesy, Pennsylvania-Central Airlines Corporation 



Fig. 3 



44 



100 



PRODUCTION 

(THOUSANDS OF TONS) 




SALES 

(MILLIONS OF $) 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



NET INCOME 

(THOUSANDS OF S) 



$2,000 

1.750 

1,500 

1,250 

1,000 

750 

500 

250 





Entire Bar Income Before Taxes 
White Bar Income After Taxes 


Black Bar-Taxes 


1 ■ 1 


„_■— 


1 1 


1 






1 












1 


, 


1 


- 


1 








.. ■ - 






1 


■ 


















r 


































,,... . . . 


—J 


L 


























L_ 




l— 





$5.00 
4.50 
4.00 
3.50 
3.00 
2.50 
2.00 
1.50 
1.00 
.50 



EARNINGS & DIVIDENDS 

($ PER SHAM) 
Entire Bar.— Earnings 



Black Bar = Dividends 



1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



lililllll 1 

1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



WORKING CAPITAL 

(MILLIONS OF $) 



$6 




1937 1938 1939 |940 1941 1942 1943 1944 1945 1946 



Fig. 4 



$16 
14 
12 



NET WORTH 

(MILLIONS OF $) 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 

Courtesy, Ricgel Paper Corporation 



45 



Progress in Facts and Figures 



1946 




1945 










o 




cs 


o 




<t 


rr 




lO 


, ~ 







AVERAGE USE OF ELECTRICITY 
Residential Customers 




1945 



1946 



. 



2JU Kl 2 * 69 * tti 



AVERAGE COST PER KILOWATT HOUR 
Residential Customers 




1945 



1946 




IIIIMIIIIIWIII 



miujjjiiiiiiniiii 



-LUIJIIIIillllllM. 



11541 451111M111 



lllllilMll 



' ■I.IMIIIIIIIIMI 



II III1MIUI 



' HI 



AVERAGE ANNUAL BILL 

Residential Customers 



m 



mimttmimmi, 



1946 



1945 



Operating 
Wages 

Welfare 

and 
Pensions 



$6,761,162 




$8,050,348 




Investment 

Per Employee 

1946 

$47,948.40 




TOTAL CUSTOMERS 




Average 
Investment 

Per 
Customer 

1946 
$447.47 





1946 
276,030 



46 



WISCONSIN ELECTRIC POWER COMPANY • Milwaukee, Wis. 



Courtesy, Wisconsin Electric Power Company 



Fis- 5 



REPORTING 

ON PRODUCTION 



CHAPTER 5 



Management might have in mind, while deter- 
mining how to cover the subject of production, 
this basic thought: How can we best shoiv the re- 
spective contributions of capital, management and 
labor to production? No adequate measure of 
each factor is available. Industrial experts and 
economists have struggled with the question — it 
is at the core of the problem of wages — and have 
arrived at no satisfactory answer. Management 
can. however, recognize such influences on pro- 
duction as waste, absenteeism, lack of effort and 
cooperation, poor planning by management, im- 
proved equipment, incentive plans, better train- 
ing and the like. In the annual report, some of 
these factors are mentioned incidentally in the re- 
port on production, others are referred to in the 
section dealing with employment and wages, still 
others in the special message or statement of prin- 
ciples that management offers through the annual 
report. 

CHECKLIST FOR 

COMMENTARY ON PRODUCTION 

Volume of production compared with pre- 
vious years. 

Comments on what the production charts 
included in the report show. 

Factors that affected production adversely: 



Change in work-week. 
Shortages of materials. 
Strikes in suppliers' plants. 
Strikes in company's plants. 
Absenteeism. 
Waste. 
Factors that aided production: 

(a) Improvements in production meth- 
ods and skills. 

Additions to plant (covered sep- 
arately under Plants and Equip- 
ment as well) . 

Acquisition of new companies 
(covered separately as well) . 



(a) 
(b) 
(c) 
(d) 
(e) 
(f) 



(b) 



(c) 



(d) Installations of equipment to im- 
prove quality of product. 

Comment on the industry in general. 

Raw-material situation. 

What proportion company's production is 
of total in country or world. 

Special contracts that will affect produc- 
tion. 

Products no longer produced. 

Backlog of unfilled orders. 

IDEAS FOR 

CHARTS AND GRAPHS 

Charts of production are used to show growth in 
output over a period of years and to compare the 
volume of production with other pertinent data. 
The following facts can be clearly set forth in 
chart form: 

1 . Output over a period of years, by units of 
production. 

2. Proportions of total production attributed to 
various products. 

3. Comparison of trend of production with: 

(a) Sales volume. 

(b) Federal index of all production. 

(c) Total production in the industry. 

(d) Capacity. 

(e) Scheduled production. 

4. Trend of productive man-hours over a period 
of years. 

5. Unfilled orders at end of year compared with 
previous or best previous year. 

See pages 51 et seq. for examples of production 
charts. 

IDEAS FOR STATISTICAL 
DATA ON PRODUCTION 

Comparative figures of yearly output of the com- 
pany's products are presented to show the results 
of operations. Frequently, the total output for 
the industry as a whole is included, especially if 
the company's production represents an impor- 

47 



REPORTING ON PRODUCTION 



tant part of the entire industry's production. Be- 
low are various tables of production and other 
statistical compilations relating to rate of opera- 
tions. 



PRODUCTION STATISTICS 



Dissolving 
Pulp Tons 



Paper Grade 
Pulp Tons 



Paper 
Tons 



Assuming six twenty-four-hour days per week as constitut- 
ing 100% operations, operating percentages of your Com- 
pany for the past five years have been as follows: 


19— 




85.78% 


19— 




93.46% 


19— 




91.59% 


19— 




93.14% 


19— 




96.90% 



PRODUCTION 





19— 
(net tons) 


19— 

(net tons) i 


Ore 








Coal 













RATE OF OPERATION 



Percentage of Steel (Ingots and Castings) 
Produced to Rated Annual Capacity 



19— 



19— 



First quarter . . 
Second quarter 
Third quarter . . 
Fourth quarter . 

Average . 







PRODUCTION 










Printing Ink 










Iron Oxides 


Gasoline 






Carbon Black 


and other Pigments 


and Butane 


Natural Gas 


Year 


(Pounds) 


(Pounds) 


(Gallons) 


(M Cu. Ft.) 





CARS AND TRUCKS PRODUCED BY THE INDUSTRY— UNITED STATES AND CANADA 




Passenger Cars Trucks Total Cars & Trucks 


Year 


Units Percentage of 19 — Units Percentage of 19 — Units Percentage of 19 — 



48 



REPORTING ON PRODUCTION 



EXCERPTS FROM 

COMMENTS ON PRODUCTION 

The excerpts given in this section have been se- 
lected for two reasons: (1) They illustrate a frank- 
ness that builds confidence, (2) they show how 
problems of production are dealt with when man- 
agement operates freely under a private-enterprise 
system. 

Need for Increased Productivity 

For the most part the problems faced by industry in 
19 — stemmed from a deep rooted misunderstanding 
of the basic relationship of wages and prices in our 
economy. In some quarters the belief was advanced 
that wages could be substantially increased without 
any increase in prices. The belief was put to test 
during the year. 

The results sharply contradicted this thesis. In- 
evitably price increases followed wage increases. 

Thoughtful men of management must regard the 
necessary price increases which have been forced upon 
them with deep concern. They know how price in- 
creases can strain customer relations and, beyond a 
certain point, cause an inevitable loss of markets. 
Only increased productivity per man hour can bring 
about lower prices in the face of higher wages. 

The task of increasing productivity per man hour 
requires close cooperation between management and 
employees. AMF Management fully accepts its re- 
sponsibility and will continue the program to im- 
prove the production facilities of the Company. We 
expect to invest more than $1,000,000 in 19 — for this 
purpose. [American Machine if Foundry Co.] 



Why production fell off 

... It was, however, impossible to continue the 
war-time levels of supply of product chiefly because 

— the use of subcontracting was greatly curtailed. 
The high cost of employing subcontractors was justi- 
fied during the war under the urgency of military 
needs, but is prohibitive for supplying normal peace- 
time markets. 

— the basic work week was reduced April 1, from 
48 hours to 40 hours. Employees in Company fac- 
tories and offices — as elsewhere throughout the nation 
— seemed insistently eager to change from a 48 hour 
to the 40 hour week now nationally accepted as stand- 
ard; and even though some of the employees might 
have been willing to continue a 48 hour week, it ap- 
peared unwise to carry the overtime burden of the 
sixth weekly work day at a time-and-a-half pay rate. 

— a substantial amount of production was lost dur- 
ing the strike at Peoria from January 29 to February 
23. 



— a two weeks shutdown of the plant for vacations, 
discontinued during the war, was again observed in 
August 19 — in accordance with the vacation plan 
adopted by the Company in 19 — . 

— shortages of many materials and component 
parts of products continued throughout the yea'r and 
seriously handicapped production programs. 

— it was impossible to obtain enough qualified 
people to meet employment requirements, largely be- 
cause of the housing shortage. [Caterpillar Tractor 
Co.] 



Why a product was dropped 

During the year, the publication of our Pocket Size 
Books was discontinued. During 19 — and 19 — 
when reading matter was in short supply due to the 
paper shortage, the company realized very substantial 
profits from this phase of its business. In 19 — , how- 
ever, with the freeing of paper, the market was flooded 
with this type of publication and sales became seri- 
ously affected. Rather than try to compete in a field 
so overcrowded, and risk further losses, it was decided 
to withdraw from this operation. [Macfadden Pub- 
lications, Inc.] 



The Troubles of a Newcomer 

We doubt that any manufacturer will look back 
on 1946 as a smooth running year. All of us had 
troubles. It was the year of reconversion, and de- 
spite the fact that an eager consumer market awaited 
our output, we had to devote most of the year to 
getting ready, rather than to turning out finished 
products. We were not alone in facing the recon- 
version problems, nor in juggling production because 
of the lack of raw materials. We shared with other 
manufacturers the setbacks caused by shortages in 
basic industries. We had to mark time when we 
wanted to speed ahead at full steam. 

We had the normal problems of a new business — 
developing a product, equipping a plant, and staffing 
a working organization. But some of our problems 
were abnormal. We were the newcomer. We found 
that because a condition of short supply existed for 
raw materials and tools, old customers were taken 
care of first in many instances. As the most recent 
arrival, we were sent to the end of the line. 

During 1946 we moved toward the head of the line 
in these major tasks: 

Tools and Parts 

Without tools we couldn't start production, and at 
the beginning of 1946, we were competing with scores 

49 



REPORTING ON PRODUCTION 



of other manufacturers for tools. The suppliers of 
machine tools and special tooling and the die makers 
were deluged with orders for new equipment. As 
new customers, we had to wait our turn. When the 
delay was too long, we didn't wait. Instead, we de- 
signed and built the equipment ourselves. In addi- 
tion, the problem of finding suppliers to make the 
necessary parts lor our cars was enormous. Most es- 
tablished suppliers in the automotive industry were 
overloaded with orders and short of raw materials. 
We had, therefore, to get the raw materials and keep 
a continuous supply flowing. We had to scour the 
country for new suppliers and, in numerous cases, 
had to finance the tooling of their plants for the pro- 
duction of items they had never built before. In 
addition, we had to finance tooling for established 
automotive suppliers in some cases. Many of our 
suppliers have come through with fine production 
records. 

Steel 

In a year when a steel shortage was hobbling the 
entire automobile industry, we as a newcomer, re- 
ceived only promises. Most of the major steel com- 
panies had steel for their prewar customers only. 

While we were carrying forward our work to break 
a steel bottleneck which threatened to block any real 
start in production, we vigorously began experimen- 
tation in the use of aluminum for automobile bodies. 
This experimentation can be of great value to the 
company in future years, but when the steel problem 
was solved, work on aluminum was discontinued. 

Through an investment of $2,000,000 in common 
stock of the newly organized Portsmouth Steel Cor- 
poration (plus a $1,000,000 investment by Graham- 
Paige Motors Corporation) Portsmouth agreed to fur- 
nish us sheet steel and other steel products. 

We needed pig iron, too, so that our suppliers 
could provide us with gray iron castings. To get this 
pig iron, we leased a blast furnace at Struthers, Ohio, 
which is now providing our suppliers with pig iron. 

Engines 

Our engine story has been a grim one. Our con- 
tract with Continental Motors Corp. provided for the 
delivery of 42,000 engines during 1946. Instead, we 
received less than 12,000 engines. Toward the end 
of the year, the condition became acute because our 
production lines were gaining momentum. Yet we 
were continually short of engines. There were times 
when we had to close the plant, because we didn't 
have enough engines on hand to complete our cars. 
From the middle of December to the first of March, 
on no single day did we have a two-day supply of en- 
gines on hand. This condition prevailed in spite of 
persistent efforts on our part to assist our engine 
maker. Finally, in March, 1947, we leased from Con- 
50 



tinental a substantial portion of its Detroit plant, and 
started to turn out engines under our own man- 
agement. We came through with 5,294 engines in 
March, an increase of 28% over the production of the 
same plant in February. In addition to the engines 
we manufacture in Detroit, Continental has agreed to 
schedule for delivery to us 4,500 per month from its 
Muskegon, Michigan plant. It hasn't met that quota 
yet. But we now have a supply of engines from our 
own operations in Detroit. An end to the manufac- 
turing problems created by the engine shortage seems 
to be in sight. 

Organization 

We are proud of the fine organization, 9,000 work- 
ers strong, which has joined together in the job of 
producing Kaiser and Frazer automobiles. Many of 
these people were newcomers to the industry and also 
were starting from scratch in automobile making. 
The past year has been marked by many difficulties 
for them. When men and women came to work 
without knowing whether there would be enough en- 
gines on hand to keep them on the job for a full day, 
it was dampening to the spirit. But the people of 
Kaiser-Frazer have retained their faith in the com- 
pany and are working more and more efficiently each 
day. 

A satisfactory interim agreement has been con- 
cluded with the U.A.W.-C.I.O. under which opera- 
tions are to continue pending negotiations on a new 
contract for the year 1947. 

In order to assist a portion of our employees in se- 
curing desperately needed housing, we invested $346,- 
000 in the Westwillow Village housing project adja- 
cent to our factory. 

In addition to our fine Willow Run organization, 
we have built an aggressive sales organization with 
136 distributors and 3900 dealers. We are repre- 
sented in 150 foreign sales areas. We have in our 
sales organization a group of men who are not only 
prepared for the immediate selling job ahead, but 
who are geared to dig in and fight for our share of 
business when selling gets tough. The distributors 
and dealers have demonstrated their confidence in 
Kaiser-Frazer by making substantial investments in 
showrooms and service facilities. This dealer organ- 
ization should prove to be one of our greatest assets 
in years to come. 

Money 

Getting into the automobile business takes a lot 
of money. Before volume production could be 
achieved, we had to invest more than $20,000,000 
in plant, machinery, special tools and equipment. 
To get steel we needed, we had to put $2,000,000 into 
Portsmouth Steel Corporation. 

Our original plan of operating the AVillow Run 



REPORTING ON PRODUCTION 



plant jointly with Graham-Paige Motors Corporation 
was altered when it became apparent that they would 
be unable to continue to contribute their one-third 
toward additional capital expenditures. This con- 
dition imposed an added financial load on us. How- 
ever, the problems of joint operation were such that 
economies could be effected if both companies' pro- 
duction and sales were concentrated. Accordingly, 
we acquired the automotive assets of the Graham- 
Paige Motors Corporation in a transaction which in- 
volved, among other things, the issuance of 750,000 
shares of our common stock to Graham-Paiere. 



Because we were delayed in achieving volume pro- 
duction, we were forced to tie up large sums of money 
in inventories and found that we needed additional 
working capital. To get it, we arranged a loan of 
$12,000,000 from the Bank of America, N.T. and S.A., 
of San Francisco, pledging certain of our assets, in- 
cluding special tools, jigs, dies, and fixtures. The 
loan has been guaranteed by Kaiser interests and by 
Mr. Frazer. This pledge of personal resources speaks 
for itself of the faith which the chief officers of Kaiser- 
Frazer Corporation have in the future of your com- 
pany. [Kaiser-Frazer Corporation] 



400 
375 
350 
325 
300 
275 
250 
225 
200 
175 
150 
125 
100 
75 
50 
25 




Galeadm Ijeasii. 
( 9«dex, munkbi, 1937 - /00 ) 




1932 1 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 



Fi 3 . 6 



Courtesy, Philip Morris & Co. Ltd., Inc. 



51 



Svs PRODUCTION 



PRODUCTION 
IN NET TONS 

3,150,000 

2,800,000 
2,450,000 
2,100,000 
1,750,000 
1,400,000 
1,050,000 
750,000 
350.000 




NET SALES 
IN DOLLARS 

225,000,000 

200,000,000 

175,000,000 

150,000,000 

125,000,000 

100,000,000 

75,000,000 

50,000,000 

25,000,000 





Courtesy, The American Rolling Mill Company 



Fis. 7 



SCHEDULED PRODUCTION 
265,500 UNITS 




LENGTH OF SERVICE AT STUDEBAKER 



a A M 



18% 

^ORETHAN 
10 YEARS 



9 



H% 







15 g i) 15 i3 g 



OF OUR 3700"VETERANS RELEASED FROM SERVICE 

1 




'SOUTH BEND PLANTS ONLT 



NO OTHER YEAR IN STUDEBAKER'S 95- 
YEAR HISTORY WAS MORE DIFFICULT 
THAN 1946 HOWEVER. IT WAS ALSO ONE 
OF THE MOST SIGNIFICANT. 

IT WAS DIFFICULT BECAUSE SHORT- 
AGES OF BASIC AND OTHER MATERIALS, 
RESULTING IN PART FROM INDUSTRIAL 
STRIFE, MADE IMPOSSIBLE THE ATTAIN. 
MENT OF SCHEDULED PRODUCTION. 

IT WAS SIGNIFICANT BECAUSE A PLAN 
CAREFULLY DEVELOPED DURING THE 
WAR YEARS ENABLED STUDEBAKER TO 
LEAD THE INDUSTRY IN THE INTRODUC- 
TION OF A GENUINE POSTWAR AUTO- 
MOBILE. 

WITH THIS PRODUCT, A LOYAL AND 
COMPETENT ORGANIZATION. AND THE 
ADDITIONS MADE TO FACILITIES LAST 
YEAR. 1947 SHOULD BE A RECORD YEAR 
FOR STUDEBAKER. 



THERE ARE $79,741,014.53 OF 
ASSETS BEHIND YOUR JOBS 
15 



/ MORE ni/n'3 ,-, 

THAN MimSr,*. 



L 



V>J)00 PER EMPLOYEE 



LJ 



ACTUAL PRODUCTION 
120,763 UNITS 




SCHEDULED PRODUCTION 

OF PASSENGER CARS AND TRUCKS 




JAN. FEB. MAR. APR. MAY JUN. JUL AUG. SEP OCT. NOV. DEC. 



Courtesy, The Studebakcr Corporation; Graphic by Piek-S, N. Y. 



Fi 3 - 8 



52 



"CATERPILLAR" INDEX OF MAN-HOURS WORKED (Hourly payroll) 

and 
FEDERAL RESERVE BOARD INDEX OF ALL INDUSTRIAL PRODUCT IC 

(1935-1939 Annual Average 100 



260 
' 240 
220 
200 
180 
160 
140 
120 
100 
80 
60 
40 
20 


















' 
































































1 

1 
1 
1 


"""-/■- 


. \ 
\ \ 
A \ 
\ \ 




























/ / 
/ / 




V 


\ 
























/ 


' / 






\\ 




















i 


f 








V* 
1 






















i 




























, 


ti • 




























S J 
s / 


















i 




■'i 


IS 




\> 


7 ? 




















J 






























'•* 






























































































1932 1933 1934 1935 


1936 1937 1938 1939 1940 


1941 


1942 19 


43 1944 1945 19 


»c 



































"CATERPILLAR" MAN-HOURS WORKED 



FEDERAL INDEX-ALL PRODUCTION 




PRODUCTION INDEXES 

Volume of Company operations and volume of national produ. '"jh hn tti > i t '.re 

shown above. Company operations are measured by the nujTilxjr of man-hours worked by hourly-paid 
employees. National production is as shown by the Federal Reserve Board Index of Industrial Production. 

It will be observed that there has been a close relationship between the national and the Company 
trends. Although there is no assurance that this relationship will continue into future years, those who 
may desire to estimate the trend of the Company s future operations may be aided in that purpose 
by watching the trend of the Federal Reserve Board Index, as periodically forecast by leading economists. 



Fig. 9 



Courtesy, Caterpillar Tractor Co. 

53 



1,500 
1,400 

A COMPARISON 1 ' 300 

OF SALES VOLUME 1,2 °° 
1,100 

HI 1936 = 100% 10 00 

900 
800 

A COMPARISON 700 
OF UNIT TOOL PRODUCTION 60 ° 

500 
400 
300 
200 
100 




1936 = 100% 




1936 1937 1938 1939 1940 1941 1942 1943 1944 1943 1946 

Courtesy, Skilsow, Inc 

Fig. 10 



, 




_ 








1 


,..,! 






_„ 






INGOT PRODUCTION 

IN MILLION TONS 












^ 


r 
















3.5 




^ 


™ 


4 
















3.0 






\ 


y^ 
















2.5 


























2.0 




















^A 


i 




1.5 














$ 


$ 


® 




> 




1.0 














W 


r 






0.5 


























.0 




CO 


CO 


GO 
CO 


CO 




104.5 


102.' 


CO 











% OF RATED CAPACITY 

Courtesy, Inland Steel Company 

Fig. 11 



ORDERS ON THE BOOKS 
FOR NEW BURROUGHS 

MACHINES 

As of Dec. 31, 1946 



COMPARED WITH BEST 
PRE-WAR YEAR END 
ORDER CONDITION 




$ 72,000,00Q *8, 000, 000 



Courtesy, Burroughs Adding Machine Company 



Fig. 12 



54 



4000 
j 
3500^ 

3000 

2500 

2000 

1500 

1000 

500 





m 



NASH PRODUCTION 
W Actual vs. Projections 

Jl^ (by weeks) 




OCT. | NOV. | DEC. 



JAN. I FEB. | MAR. | APRIL | MAY I JUNE T JULY | AUG. | SEPT. 

Courtesy, Xash-Kclz'inator Corporation 

Fi 3 . 13 



PACKARD PREPARED FOR HEAVY CAR DEMAND 



U. S. CAR REGISTRATIONS (ail makes) 



1941 



27,700,811 



1946i 



25,142,527 

Increased service parts production has kept thousands 
of over-age cars from the scrap pile as indicated here. 
They are badly in need of replacement. 



AGE OF CARS IN SERVICE 



Industry: 

1941 — i 
1946—— 



5y 2 YEARS 



Packard: 

1941 — — 



4 2/10 YEARS 



9 YEARS 



1946 



8 1/10 YEARS 



The urgent need for new cars is graphically illustrated 
here. Comparative figures on Packard reflect the rising 
volume of Packard production in recent years. 



Fig. 14 



PACKARD POTENTIAL CAPACITY 

. ...JJJ.fr 1 - ■ ^™W^ 




PREWAR: 
180,000 CARS PER YEAR 



POSTWAR: 
200.000 CARS PER YEAR 



In its postwar planning, Packard mapped a program for 
doubling its best prewar volume, with potential pro- 
duction capacity increased to 200,000 cars per year. 



PACKARD DEALER ORGANIZATION 




1941: 
1,578 DEALERS 



1946: 
2,055 DEALERS 



The Packard dealer organization today is the finest and 
strongest in Packard history, capable of merchandising 
the increased car production volume of future years. 



Courtesy, Packard Motor Car Company 



55 



SHUTDOWNS, COMPLETE AND PARTIAL, DURING 1946 



WARREN 
PLANT 

GLASSPORT 
PLANT 



I 



JAN. FEB MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. 






Courtesy, Copper weld Steel Company 



Fig. 15 



1946 PRODUCTION OF PACKARD CARS BY MONTHS 



/.OWI- 












Ji 




A 


^ 














A 


/ 


V 




/ 


^ 


V 












/ 




\ 


> 


r 




\ 










J 


V 




\ 


f 
















/ 
















1,000- 


s 




J 


f 
















M— 1 


f 
















i 



1 Jan. Feb. Mar Apr, 

55 working days lost 

— strike in 

supplier's plant 

— bearings 



May June My J Aim LJSLl 0cL Hn LifeJ 
7 days lost.^-^*^^5 days lost 8 days lost 

in "^ in supplier's — changes in 

Packard strike supplier's plant 

stoppage — bodies — bodies 



J 



Courtesy, Packard Motor Car Company 

Fig. 16 



Net Crude Oil Production 



Mltt-IOtiS OF &AlU,ElS 
30 




eompMLDticj PRODUCTIVE MAN-HOURS 




1942 1943 1944 



(945 1946 

Courtesy, Sun Oil Company 



UPON 



Fig. 17 



Courtesy, Cherry-Burrell Corporation 

Fig. 18 



U6 



J 



REPORTING ON 

VOLUME OF BUSINESS-SALES 



CHAPTER 6 



The sales story, as it should be told in the annual 
report, has two angles: (1) Volume of business, 
(2) "what happened to the sales dollar." The 
second aspect is quite as important as the first, 
for bv calling attention to the sharing of the sales 
dollar, management can try to correct such pub- 
lic misconceptions as: A large volume of business 
means big profits or, owners and managers get 
the greatest amount of benefits from an increased 
volume of business. 

This chapter deals only with the first part of the 
sales story. The second part is covered in Chap- 
ter 7. 

CHECKLIST FOR COMMENTARY ON 
VOLUME OF BUSINESS AND SALES 

Total volume compared with previous 
year. 

What the sales figure represents. 

Comments on what the sales charts in- 
cluded in the report show. 

Factors that influenced growth or shrink- 



volume of business. The most common facts 
charted are: 



age. 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 



Prices. 

Marketing methods. 
Sale promotion. 
New products. 
Products dropped. 
Competition. 
How various products fared (sometimes 
covered separately where report is made 
on each division of the business) . 
What happened in industries that buy the 
company's products or use its services. 
See also checklist for reporting on market- 
ing, page 167. 

IDEAS FOR 

CHARTS AND GRAPHS 

Practically every report that makes use of charts 
and graphs includes some type of chart to reflect 



9. 
10. 

11. 
12. 

13. 

14. 

15. 
16. 

17. 



18. 



Gross sales in dollars for a period of years. 
Net sales in dollars for a period of years. 
Average sales per month for a period of 
years. 

Revenues from operations for a period of 
years. 

What each operating division contributed to 
the total sales for a period of years or in a 
particular year. 

Trend of company's volume of business com- 
pared with: 

(a) Business activity for the country as a 
whole. 

(b) Production in related industry. 

(c) Production for the country as a whole. 

(d) Business done by the industry as a 
whole. 

(e) Company's capacity. 

Per cent that orders received each year rep- 
resent out of available business in the in- 
dustry. 

Completed contracts compared with book- 
ings for a period of years. 
Number of units sold for a period of years. 
Volume of sales in dollars compared with 
volume in units for a period of years. 
Tonnage shipped for a period of years. 
Growth in number of customers. 
Net gain in instruments (such as telephones) 
that measure volume. 

Route-miles in service and flight-miles oper- 
ated. 

Passenger-miles flown and passengers carried. 
Peak demands. 
Relation of sales to: 

(a) Net fixed assets. 

(b) Inventories. 

(c) Capital invested. 

(d) Profits. 

Net sales price per unit of product real- 

57 



REPORTING ON VOLUME OF BUSINESS-SALES 



ized during year compared with other years. 

19. Trend of prices oi : company's product com- 
pared with: 

(a) Trend of general price level for all 
manufactured goods. 

(b) Wholesale prices. 

(c) Retail prices. 

(d) Cost-of-living index. 

(e) Price of principal raw material enter- 
ing into product. 

20. Loss of revenue, and recovery. 

See pages 62-70 for examples of sales charts. 
See also charts at pages 62 et seq. for other graphic 
presentations of sources of income in a particular 
year. 

IDEAS FOR STATISTICAL DATA 

Statistical data relating to sales may reveal such 
facts as the following: 



1. 

9 



The trend of the business. 
Class of product or service that made the best 
progress during the year. 

Position of departments and divisions in vol- 
ume of business. 

Progress of a particular branch of a business. 
Industries that use the company's products. 
Fluctuations to which sales are subject. 
Seasonal variations, if quarterly figures over a 
period of years are given. 
Total sales for year compared with competi- 
tors' totals (adaptable by outstanding pro- 
ducer in field). 



Various statistical tables are outlined below to 
show typical set-ups. 

One of the most popular statistical presenta- 
tions is a table of sales, earnings and dividends for 
a period of years. For examples of such table 
headings, see pages 1 16 et seq. 



The following table gives a comparison of 19 — and 19 — sales: 



19— 



Sales of Regular Products in the United States: 

Motor trucks, service and service parts $ 

Farm implements and service parts 

Farm tractors and service parts 

Industrial equipment and service parts 

Steel, pig iron, and coke by-products 

Binder and baler twine 

Refrigeration equipment 

Miscellaneous 

Total $ 



Per Cent 
of Total 



19— 



Per Cent 
of Total 





SALES BY THE INDUSTRY TO CONSUMERS IN THE UNITED STATES 




Passenger Cars Trucks Total Cars & Trucks 


Year 


Units Percentage of 19 — Units Percentage of 19 — Units Percentage of 19 — 



Since 19 — this branch of the business has never failed to register an annual increase. The following is the record for the past five years: 

Average Price 
Year M Cu. Ft. Revenue (Cents per M Cu. Ft.) 



Year 



Barrels 



Sales 



Amount 



Crude Oil Processed at Refineries 
Barrels 



58 



REPORTING ON VOLUME OF BUSINESS-SALES 



OPERATION AND TRAFFIC STATISTICS 
The continued growth of your Company is evidenced in the following statistical tables: 



19— 



19— 



19— 



Mail pounds carried 

Mail pound miles flown (1,000) 

Total mail revenue 

Number of revenue passengers carried 

Revenue passenger miles flown 

Total passenger revenue 

Air express pounds carried 

Total air express revenue 

Total revenue miles flown 



Daily scheduled miles flown with passengers 
Number of daily scheduled flights with passengers 

Number of passenger airplanes in service 

Average seating capacity per plane 

Post Office Department authorized route mileage . 
Number of employees 



19— 



December 
19- 



Percent Increase 

1 9 — over 1 9 — over 

19— 19— 



19- 



Percent Increase 

1 9 — over 1 9 — over 

19— 19— 











ELECTRIC AND GAS STATISTICS 








Kilowatt-hour 
follows: 


sales 


of electricity for residentia 


I, commercial, industrial power, and other 


purposes 


for the 


past ten years were as 


Year 






Residential 
Sales 


Commercial Industrial Power 
Sales Sales 


Other 


Sales 


Total Sales 


The following is a comparison for the past ten years of the number of electric residential customers 
kilowatt-hour consumption per customer, the average annual residential bill, and the average rate pa 
residential service: 


, the average annual residential 
id per kilowatt-hour for electric 


Year 






Number of 

Residential 

Customers 

December 31 


Average Annual 
Residential 
Kilowatt-hour Average Annua 
Consumption Residential 
Per Customer Bill 


I 


Average 

Residential 

Rate Paid 

Per Kilowatt-hour 

Cents 


Cubic feet sal 


es of 


gas for 


residential, commercial, industrial and other purposes for the past ten years were as follows: 


Year 






Residential 
Sales 


Commercial Industrial 
Sales Sales 


Other 


Sales 


Total Sales 



KILOWATT HOURS OF ELECTRICITY SOLD 



Class of Service 

Residential and rural 

Commercial and industrial: 

Large power and light . 

Small power and light . 
Sales to public authorities 

Electric railroads 

Other electric utilities . . . 

Total 



Year 19- 



Year 19— 



Increase 



59 



REPORTING ON VOLUME OF BUSINESS— SALES 



SALES OF ELECTRICITY, GAS AND STEAM 



Year 



Sales of Electricity, 
Kilowatt-Hours 



Sales of Gas, 
Cubic Feet 



Sales of Steam, 
Pounds 



DIVISION AND COMPARISON OF 19— REVENUES 


Classification 


Revenue 


Increase in 19 — 


%of 19— 

Electric Revenues 

Produced by Each 

Classification 


19— 


19— 


Amount % 




$ 


$ 


$ 














Total 


$ 


$ 


$ 








$ 


$ 


$ 




Total 


S 


$ 


S 



Largest consuming industries in 19 — , listed in order of the 
dollar volume of sales to them, compared with the order in 1 9 — . 

Industry Relative Relative 

Importance Importance 

19— 19— 



EXCERPTS FROM COMMENTS ON 
VOLUME OF BUSINESS AND PRICES 

The narrative report on sales usually deals with 
the volume of sales and the reasons for any de- 
crease. The close relationship of prices to dollar 
value of sales offers an opportunity for comment 
on the pricing policy of the company or on the 
trend of prices in the industry. The excerpts 
given below show some unusually interesting com- 
ments on the subjects treated in this section. 



Lower Prices Benefit All 

The policy of General Motors and of the auto- 
mobile industry generally has always been one of 
vigorous competition and aggressive application of 
60 



POSITIONS OF DEPARTMENTS AND DIVISIONS IN 
VOLUME OF BUSINESS 

The manufacturing and sales activities are conducted through 
eleven departments or divisions. Their respective positions 
from the standpoint of dollar business in the years 19 — and 
19 — are as follows: 



19- 



19— 



Department 



technical improvements, with the result that prices 
have been reduced or quality improved or both. The 
war and its aftermath have temporarily interrupted 
this trend. 

If more and better things are to be made available 
to more people, an important share of the bene- 
fits coming from improved methods and technical 
advancements must be passed along to customers. 
Greater values must be provided for the same money 
or the same values for less money. Workers and 
stockholders are also customers and therefore benefit 
from these greater values. When prices are reduced, 
the benefits of industrial efficiency are made available 
to all. Higher levels of production can be estab- 
lished and all can have more. 



REPORTING ON VOLUME OF BUSINESS— SALES 



Increases in productivity which make lower prices 
or improved values possible do not come automati- 
cally. In the main they result from improved tools, 
new processes and new inventions, and these come 
about because someone is willing to put up money 
for their development. Such technological progress 
is slow, but the long-term results are highly impor- 
tant. General Motors over the years has built up a 
substantial investment in plant and equipment and 
is currently expanding and importantly improving its 
facilities. Part of the funds being used come from 
profits already earned, and part represent capital fur- 
nished by investors. 

That this investment should be profitable is im- 
portant not only to investors but to consumers and 
workers as well. The incentive in our business sys- 
tem is the hope of profit. If reasonable profits are 
not generally realized, investment ceases and progress 
stops. The realization of profit provides a continu- 
ing incentive to save and invest. That makes pos- 
sible the growth of business with more and better op- 
portunities for workers and improved values for con- 
sumers. [General Motors Corporation] 



Efforts to keep established price of product 

There are many indications that the public's re- 
sponse to the maintenance of quality throughout the 
period of restrictions and the effort on the part of the 
bottlers of Coca-Cola generally to prevent an increase 
in the historic 5^ consumer price at retail outlets will 
have most satisfying and encouraging results in the 
post-war market. [Coca-Cola Company] 



Prices 

There is a close relationship between the selling 
price of our products and the development of our full 
potential market. Our prices must be low enough 
to permit us to compete successfully with manufac- 
turers of competitive materials. We always have en- 
deavored, therefore, to hold down the prices of our 
products, but we were unsuccessful in holding the 
price lines in 19 — . 

A general increase in all steel prices was granted 
by the OPA in February, 19 — . Coupled with the 



economies of large-volume production, this permitted 
us to absorb wage increases and the substantial and 
continuous rises in the prices of supplies and services 
throughout most of the year. 

In November and December of 19 — there occurred 
a very sharp increase in the price of raw materials, 
particularly scrap. Although this latest rise has been 
partially offset by a "rounding out" of selling prices, 
the full effect of these higher raw materials costs has 
not yet become apparent. [Allegheny Ludlum Steel 
Corporation] 

Advantages of Diversification 

Results for our fiscal year demonstrated, as never 
before, the benefits of diversified activities. Having 
our eggs, figuratively, in many baskets enabled us to 
realize good results. 

In a belief that Shai-eholders will be interested in 
our associated and affiliated activities, which have 
meant so much to us, they are described in some de- 
tail elsewhere in this report. [Armour and Com- 
pany] 

Capital Turnover 

Return on invested capital, the true index of finan- 
cial success, is the result of the interplay of sales, costs, 
and invested capital. The relationship between sell- 
ing prices and costs is generally pretty well stabilized, 
and for the year 19 — the margin, after all deductions 
except Federal taxes, between these two factors was 
approximately — % of sales. Because Allegheny Lud- 
lum sales were 3]/ 2 times its invested capital, however, 
this seemingly small margin resulted in earnings be- 
fore taxes that were — % of invested capital. This 
ratio of sales to capital invested, known as capital 
turnover, is fully as important in determining return 
on investment as is low cost, a fact which is frequently 
overlooked. Allegheny Ludlum, while striving al- 
ways for low costs, continues to seek simultaneously 
the maximum possible rate of capital turnover. This 
objective is maintained by finding ways of reducing 
investment in inventories, without adversely affecting 
service to customers, and by approving only those 
modernization proposals as will provide, through cost 
savings, a return on the new investment commen- 
surate with that being earned currently by the com- 
pany. [Allegheny Ludlum Steel Corporation] 



61 



REVENUE MILES FLOWN 



=t' ::■",'::,"" 



1 ■"■■ ' "' " T" , ;. ' ,„ ' .,.., , ■; ' ; , ' ■""""" ' ' ' " " " .". 



1939 



1946 



V 



2,760,090 



M, 14?, 377 



■&\g^ 



Courtesy, Trans-Canada Air Lines 



Fig. 19 
A DECADE OF GROWTH 



Net Soles Before Deducting 
Federol ond Stole Excise To 




I937 I930 



Courtesy, Falstaff Brewing Corporation 



Fig. 20 




62 



Fig. 21 



TOTAL INVESTMENT -Ptercmt of Net Sales 




Courtesy, Sylvania Electric Products, Inc 

Fi 3 . 22 



ANNUAL NET SALES and SALES PRICE REALIZED PER TON 



29.5 
25.8 fart 2 Z£ 









Annual Net Sales 

MILLIONS OF DOLLARS 
39.2 

s 

30.7 I 1! 









Net Sales Price Realized 
Per Ton 



$48.66 tiint 

$46.23 . __$46.22 * $45 55 i4i 57 



II 












mZf 



1941 1942 1943 1944 1945 1946 1941 1942 1943 1944 1945 1946 



Courtesy, The Ruberoid Co. 



Fig. 23 



(IN MILLIONS OF DOLLARS) 




Fi 3 . 24 



Courtesy, Adam Hat Stores, Inc 

63 



$1,300,000 

1,250,000 

1,200,000 

1,150,000 

1,100,000 

1 ,050,000 

1,000,000 

950,000 

900,000 

850,000 

800,000 

750,000 

700,000 

650,000 

600,000 

550,000 

500,000 

450,000 

400,000 

350,000 

300,000 

250,000 

200,000 

150,000 

100,000 

50,000 



ALASKA AIRLINES REVENUES 

Fiscal Years 1943-1946 



W TOTAL 
"fa PASSENGERS 
• FREIGHT AND EXPRESS 
O MAIL 



$668,967- 




$823,638- 



$367,894- 




1943 



1944 



1945 1946 

Courtesy, Alaska Airlines 



Fig. 25 



260 

240 

220 

200 

180 

160 

140 

120 

100 

80 

60 

40 











T 


























Consolidated Edison System Revenues 

Compared with Electric and Gas Industries 

and National Industrial Production 












• • 
• 
• 
• 
« 


'"*•-.. 


• 
• 
* 








INDUSTRIAL PRODUCT) 
FEDERAL RESERVE BOA 


RD 


.• 

* 




• 
• 
* 
• 
■ 


i 


























* 

• 
• 
• 








• 
• 
■ 
■ 
• 


























• 
• 
• 
• 


EL 
GA 


ECTRIC At 
S REVENU 


ES 


• 
























• 
• 
• 
• 
* 






' U. S. A. " 


-/—<""■ 
























..• 


* 
• 
• 
* 


*>** 


^ 








a . 












A 


^ 


• 
• 




^ 


y0> ,rr\ 












193 






~<z 


*-- 


* — -. 


. — 


'7*^ 


•• 




• 


« 

• 

• 








CO 
EDI 


NSOLIDAT 
SON SYST 


ED 
EM 






\ 


X 


,.."* 





•*• 


















REVENUES 










T *i 


• * 





























1929 30 31 32 33 34 35 36 37 38 29 40 41 42 43 44 45 1946 



Courtesy, Consolidated Edison Company of New York, Inc. 



Fig. 26 



64 



SALES OF CRUDE OIL AND PRODUCTS 



J in Terms of Maitons of Barrels 
■ in Terms of Millions of Dollars 




MILLIONS 
OF BARRELS 
AND DOLLARS 



1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 

Courtesy, Standard Oil Company (Indiana) 

Fig. 27 



TEN YEARS of PROGRESS . . . Compared to America's Electric Industry 



TOTAL ELECTRIC SALES (KWH) 



260 



PORATION. Consolidated 
SE 258% 



: 

■ # 




10 Y£AR INCREASE 
U,S.A. 113 % 



F.P.C. SALES 

THOUSANDS KWH 



1946 

1945 
1944 

' 1943 
1942 

, 1941 
1940 
1939 
1936 






1937 



1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 

Courtesy, Florida Power Corporation 

Fig. 28 

65 




IN ONE YEAR CPL RECOVERS 
ALMOST ALL LOST REVENOES 



BIG BEND PROPERTY SALES 



$550,000 

LOSS OF WAR LOADS 



$843,000 

SALE OF WATER PROPERTIES 




r O $2, 148,000 
TOTAL REVENUE LOSSES 
IN 1946 



Courtesy, Central Powci and Light Company 



Fi g . 29 



ANNUAL DELIVERY CAPACITY AND ANNUAL VOLUME OF GAS SOLD 



100 



=> 

u 



in 

z 
O 



CD 



mmmmm^MMi 

■Miin.u. iiiiys if $M Dlif 







Courtesy, Southern Natural Cas Company 



Fig. 30 



66 




WSSmmSKSmk 

Courtesy, Bridgeport Brass Company 



Fig. 31 



CENTS 









mss 



16 
IS 

14 
13 

12 
11 

1 
9 
S 
7 
6 
5 
4 









. :S:.: "■".. ««« 



Residential - 

KWH USAGE AND PRICE 

(Compared with BatUnal averages) 







'27 



28 29 '30 31 



GA. POWER CO. 
AVERAGE 

Price in Cents 
Per KWH 



CI,, 



NATIONAL 

AVERAGE 

Price in Cents 
Per KWH 




1900 

1800 

1700 

1600 

1500 

1400 

1300 

1200 

1100 

1000 

900 

800 

700 

600 

500 

400 



33 '34 35 '36 '37 '38 '39 '40 '41 '42 '43 '44 '45 '46 



O 



GA. POWER CO. 
AVERAGE 

Annual KWH 
Per Customer 



fin 



NATIONAL 
AVERAGE 

Annual KWH 
Per Customer 



<r 
u 
S 
o 

r- 

tn 

« 

OS 

w 

6. 

X 

X 

ml 
< 

3 
2 

z 

< 

ut 

o 
< 

hi 

> 

< 



Fig. 32 



Courtesy, Georgia Power Company 



67 



GAS SALES 







Courtesy, Continental Motors Corporation 

Fig. 33 



BILLIONS OF CUBIC FEET 
1601 




'37 '38 '39 '40 '41 '42 '43 '44 '45 '46 



Courtesy, Consolidated Natural Gas Company 

Fig. 35 



Price 
Index • 

145 - 


INCREASE IN 
1945 CONSUMER PRICES 






MILLIONS 

'140 


144 - 


All Foods vs. Dairy Products 






'130 


143- 








'120 


142- 
141 - 




yS 


1 141.4 


*110 


140- 
139 - 


All Foods^ ^*^ 




+4.1 


*100 
*90 


138 — 

, 137.3 
137 — 








*$0 








*70 


136- 


Dairy Products >. ^ p ^^***" 




x 136.2 


♦60 


135- 

134- 

133.5 
133- 




\ 


+2.7 


'50 






>40 


132 - 








'30 


131 - 








'20 


130- 


Scale Broken 






'10 


100 ... 


Index 1935 -'39 = 100 






,. u , U. S. Dept. of Labor. 
*»"■ ' Bureau of Labor Statistics 
1945 


DEC. 
19' 


31 

15 





Courtesy, National Dairy Products Corporation 

Fig. 34 



RELATION OF SALES 

TO 
NET FIXED ASSETS 

INCLUDING PLANT UNDER CONSTRUCTION 

| NET SALES PER ANNUM 

I NET FIXED ASSETS 
AT END OF EACH TEAR 



1M» SM0 1M1 1*42 IMS 1*44 IMS l»46 

Courtesy, Cclanese Corporation of America 

Fig. 36 



68 




Courtesy, Imperial Oil Limited 



Fig. 37 







CORNINGS 


PRICE 


HISTORY 






100 

90 
80 
^0 
60 
50 
40 


INDEX 1925 = 100 








* 
* 
* 




VW ■ 


"\ 


A 


1 

// Manufactured Gooa 










-A 


'X... 


* 
* 
* 
> 






\ 




?~ 


























Alt Corning Products ^^ 


































I | 


| I 


i i 


1 ! 


i i 


! 


1925 1928 1931 1934 1937 1940 1943 1946 



COST OF LIVING VS COST OF RESIDENTIAL GAS 
1937-100 



Graph compares the price index since i<j2j of Corning products with all manufactured 
goods in the United Stales. Figures used represent general averages fur each year. 
1046 figures are preliminary. The line showing Corning products is a weighted average 
of 166 different items of ware. 

Courtesy, Coming Glass Works 

Fig. 38 



r 



1937 1938 1939 1940 

■I COST OF LIVING 

SOURCE. CONSUMER'S PRICE INDEX. BUREAU OF LABOR STATISTICS 



1942 1943 1944 1945 1946 

HH COST OF RESIDENTIAL GAS 
[MOFOMU— h*kh4) 



Courtesy, Columbia Gas & Electric Corporation 



Fig. 39 



69 




CHART VI RECORD OF SALESa DIVERSIFICATION 



j Here is what each Operating 
Division contributed on a j 

j percentage basis to the Cor- 
poration's Tata) 1943 Sates, j 



JJ 



•ic Products Corporate 



Fig. 40 



(Sales in Millions of Dollars) 



DIRECT WAR SALES 

SALES OF DIVERSIFIED PRODUCTS 

SALES OF ORIGINAL VICK PRODUCTS 



35.6 





SALES OF ORIGINAL VICK PRODUCTS 



1930 31 32 33 34 35 36 37 38 39 40 4! 42 43 44 45 

This is the record of our accomplished diversification in sales. Prior to 1931 our 
total sales were from the original Vick products. In 1945 only 25 per cent of our 
sales came from the original products and 75 per cent from other products in 
Vick and its new subsidiaries. 

Courtesy, Vick Chemical Company 

Fig. 42 



Sources U S Dept ol Commerce retoil onces U 5 Bureau o 1 Lobo- wholesale o*6 s'ee' D"ces 

Courtesy, Inland Steel Company 



millions t 


!■". '• 


-.( 




:.' 


.! 




$40 'I 


: |j 


I 


I 


/ 


V 


H 


$30. " 1 


1 


B 


8 


5 


9 


81 


$20 


B 


1 


1 






I 


510 I 


1 


1 










4 


4 
Black line 
complete 
shortage 


1 42 . : 43 ■'■ 44 4 

indicates orders booked. White line 

i contracts and sales/Chart reflects 

of materials in fiscal. 1945 and 1946 


5 46 



Courtesy, Carrier Corporation 



Fig. 41 



Fig. 43 



70 



REPORTING ON 

WHERE THE SALES DOLLAR WENT 



CHAPTER 7 



Among the items that make up the cost of doing 
business, two invariably receive special attention 
in comprehensive annual reports — wages and 
taxes. Ideas for reporting on these items are 
therefore given separately in Chapters 10 and 11. 
In this chapter, ideas are given for reporting upon 
such items as costs of materials and supplies, de- 
preciation, and other operating, selling and gen- 
eral expenses. 

Since each dollar of income is distributed prin- 
cipally among the items that make up the cost of 
doing business, it is appropriate to discuss in this 
chapter the methods of showing how money taken 
in was spent. 

WHERE THE SALES DOLLAR WENT 

Every modern annual report offers information to 
show where the sales dollar went. This feature 
has won almost universal acceptance in annual re- 
porting because: (1) The information is easily 
grasped, (2) it is comprehensive, reflecting every 
phase of the company's operations for the year, 
(3) it lends itself to a variety of presentations in 
both statistical and graphic form. 

Many names have been given to the analysis 
based upon dollar sales. It has been called, for 
example, "19 — Receipts and Disbursements," 
"Where Our Sales Dollar Went," "Source and 
Disposition of Income," "Analysis of 19 — Opera- 
tions," "How our Dollar Was Used," "The 19 — 
Revenue Dollar — Where It Came From and 
Where It Was Spent," "19 — Distribution of In- 
come," "How the Sales Dollar Was Divided in 
19 — ," "What We Did with the Money Received 
for the Work We Completed." It has also been 
referred to as an "Income-Outgo" statement. 

THE STORY OF HOW 
THE DOLLAR WAS USED 

The story of where the sales dollar came from and 
went to is essentially an interpretation of the in- 



come statement for the year. It can be told in the 
following, forms: 

1) Statistical. A statement similar to the sim- 
plified income statements given in Chapter 14 and 
at page 74, is presented. In addition to the 
total figures, or in lieu of them, the relationship of 
each item of outgo to total income is shown. 
This is done through: 

(a) A column called "Cents per dollar of 
sales." The total sales represent $1.00 and each 
item of cost is indicated as cents per dollar of sale; 
or 

(b) A column called "Percentage." The to- 
tal sales represent 100% and each item of cost is 
indicated as a percentage of the total sales. 

2) Graphic. Charts showing the distribution 
of the sales dollar reveal more clearly than any 
other single chart the results of the year's opera- 
tions. They are a satisfactory way of showing 
graphically the costs of doing business. The 
charts are most commonly presented as sector or 
pie charts. To add interest to the illustration, 
various techniques have been employed, such as 
color to differentiate the various sectors, symbols 
to represent the type of outgo, and the like. The 
various portions are usually indicated as cents or 
per cents and, if a large enough chart is drawn, the 
amount of dollars may be included in the sections. 
Frequently there is presented, along with the 
chart of outgo, a corresponding chart showing 
where the dollar came from. If the "income and 
outgo" information is to be shown for a number 
of years, the bar-chart is more suitable. See page 
72 for further comments on "dollar of sales" 
charts. A number of examples of such charts are 
given at pages 78 et seq. 

3) Narrative. The narrative consists of an 
explanation of each of the items noted in the 
statistical or graphic presentation. Whether the 
narrative is included along with the analysis or in 
another part of the report depends upon the plan 
of the report. Checklists for points that may be 

71 



REPORTING ON WHERE THE SALES DOLLAR WENT 



covered in explaining the items that make np the 
analysis will be found as indicated below. 

Amount received from sales: page 57. 

Cost of materials and supplies: page 73. 

Wages and salaries: page 134. 

Depreciation: page 73. 

Taxes: page 153. 

To owners: page 91. 

Retained in the business: page 104. 

SOME SHORTCOMINGS OF 
DIVIDING THE SALES DOLLAR 

In some companies, the largest item among the 
costs of doing business is the amount paid for the 
purchase of materials and supplies. In such com- 
panies, labor appears to get a proportionately 
small part of the sales dollar, yet wages in such 
companies may be no lower than in companies 
that spend the major part of their sales dollar in 
wages. Thus, the company with heavy material- 
costs is at a disadvantage in showing where the 
sales dollar went. The laborer or man in the 
street reading the report may conclude that labor 
is not getting enough of the company's sales dol- 
lar. If this erroneous conclusion is drawn, the 
statement is harmful to the company. 

What shall the company do about it? Shall it 
avoid showing how the sales dollar was divided? 
Obviously, that is not the solution, for it is gener- 
ally agreed that stockholders, employees and the 
public are interested in what becomes of the com- 
pany's dollar receipts. Shall it anticipate the un- 
fair criticism by pointing out that the wages paid 
by the producer of the raw materials are included 
in the costs of materials? A few companies have 
tried this method. Its effectiveness is doubtful. 
Shall the company ask its suppliers to tell what 
part of the materials bill is attributable to labor? 
The inquiry is not worthwhile. The difficulties 
of tracing back the labor costs in materials pur- 
chased are too clear. And few people would be- 
lieve the figures. 

Only one real solution is offered: 1 To discard 
the sales dollar as the basis for analyzing the costs 
of doing business, and to substitute as the basis 
the "value added" by the company's operations. 
This value added is found by taking the amount 
received from customers and subtracting the 



1 See "What Measuring Stick for Business," by William H. 
Griffiths, Point of View, September, 1947, p. 17, published by 
Geffen, Dunn & Co., New York, N. Y. 

72 



amount paid for materials and supplies. Each 
item of the cost of doing business — except, of 
course, materials and supplies — is then shown as 
a proportion of the value added figure rather than 
of the total sales figure. An actual example of 
such an analysis of operations is given at page 74. 
A simple example will show the difference be- 
tween dividing the sales dollar and dividing the 
value added. 

Division of Sales Dollar 

Sales $1,000,000 (100%) 

Divided as follows: 

Materials and supplies 750,000 (75%) 

Wases and salaries 175,000 (17 ] 2 %) 

Taxes 30,000 (3%) 

Wear and tear 1 5,000 (1 V 2 %) 

Paid to owners 12,500 (1 U%) 

Retained in the business 1 7,500 (1 %%) 

Total $1,000,000 (100%) 

Division of Value Added or Sales Dollar 
After Deducting Cost of Materials 

Sales $1,000,000 

Less cost of materials and supplies 750,000 

Amount available for the balance of the 

needs of the business $250,000 

Divided as follows: 

Wases and salaries $1 75,000 (70%) 

Taxes 30,000 (12%) 

Wear and tear 1 5,000 (6%) 

Paid to owners 12,500 (5%) 

Retained in the business 17,500 (7%) 

Total $250,000 (100%) 

JUSTIFICATION FOR 

THE VALUE ADDED BASIS 

The value added method of analyzing operations 
is not suggested as a mere expedient for showing 
that wages and salaries represent a high percentage 
of the cost of doing business. It finds justification 
in the argument that the value of products sold is 
not a satisfactory measure of what the company 
accomplished during the year. Take, for ex- 
ample, companies A and B, each with $1,000,000 
of sales. Company A has worked upon raw mate- 
rials that cost $750,000. Company B used very 
few raw materials but created its products largely 
through labor. Which company has accom- 
plished more? Obviously, Company B. 

The value added concept in measuring accom- 
plishment is not new in business analysis. The 
Census of Manufactures has used it in studying 



REPORTING ON WHERE THE SALES DOLLAR WENT 



the growth of manufactures. The following quo- 
tation from the Census of Manufactures, 1939, pre- 
pared under the supervision of Thomas J. Fitz- 
gerald, Chief Statistician of Manufactures, and 
published in 1942 by the United States Govern- 
ment Printing Office, explains the importance of 
the value added in comparing one industry with 
another. 

The value of products is not a satisfactory measure 
of the importance of a given industry, because only a 
part of this value is actually created within the in- 
dustry, another, and sometimes much larger, part 
being contributed by the materials used. For some 
purposes the most satisfactory measure is "the value 
added by manufacture - ' — that is, the increase in the 
total value of commodities in existence as represented 
by the difference between the cost of the materials, 
etc., consumed and the value of the products made 
from them. It is calculated by subtracting the cost 
of materials, supplies, containers, fuel, purchased elec- 
trical energy, and contract work from the value of 
products. 

This net addition to the value of commodities is 
almost free from the duplication that is a factor in 
the total value of products. 

In comparing manufacturing industries with one 
another, the relation between the value of finished 
products and the cost of materials should be kept 
constantly in mind. The products of one industry 
may be valued at the same amount as those of an- 
other, but in one case, in which low-cost materials 
are used and much labor is expended on them, sev- 
eral times as much value may be added to the mate- 
rials as in the other industry, where the materials are 
expensive and only a small amount of labor is re- 
quired to process them. It is obvious that the indus- 
try that adds the greater amount of value is of the 
greater economic importance. 

Very few companies so far have analyzed their 
operations from the standpoint of the division of 
each dollar of value added (sales minus cost of 
materials) . The idea is comparatively new in an- 
nual reports. It could, however, be used more 
generally by all companies, whether or not they 
spend a substantial part of the year's receipts for 
materials and supplies. Only one objection can 
be raised to it: The percentage of profits shows up 
larger than if profits are taken as a percentage of 
the sales dollar. But even that argument loses 
weight in view of the fact that all the items are 
higher percentagewise. They all, however, retain 
their relative positions. The simple example at 
page 72 brings this out clearly. 



CHECKLIST FOR COMMENTARY 
ON MATERIALS AND SUPPLIES 

Total amount spent on materials and sup- 
plies. 

Kinds of materials and services bought and 
amount spent on each kind. 

What total costs of materials and supplies 
amount to per worker. 

Labor's responsibility for preventing waste 
of material. 

Changes in costs of materials. (Some- 
times covered in reporting on profits; see 
page 90.) 

Patronage of "home town" suppliers. 

CHECKLIST FOR 
OPERATING EXPENSES 

Total cost of goods sold compared with pre- 
vious year. (Not always disclosed be- 
cause of competitors' interest in them; 
but see page 32.) 

Reasons for increase or decrease in oper- 
ating costs. 

Operating ratio reflecting the ratio of oper- 
ating expenses to gross revenue. (In- 
dicate items excluded from operating ex- 
penses.) 

LInusual charges to operating expenses that 
distort comparison with previous year. 

CHECKLIST FOR 
DEPRECIATION 

Explain the nature of depreciation since 
the term is generally misunderstood. 
(Common misconceptions: Depreciation 
is a fund; is not an operating expense; 
deductions are excessive to hide profits.) 

Differentiate between depreciation and 
current maintenance. 

Tell whether rates were same as for pre- 
vious year. 

What has general depreciation policy been. 

Changes in policy. 

Explain how a year's wear and tear is meas- 
ured. 

What has been company's experience with 
obsolescence. 

With costs of durable goods higher than in 
years during which depreciation allow- 
ances were made, what happens if the al- 
lowance proves insufficient. 

73 



REPORTING ON WHERE THE SALES DOLLAR WENT 



What happens if too much depreciation 
has been allowed. 

IDEAS FOR 
STATISTICAL DATA 

Statistics of operating costs are not usually found 
in reports of industrial companies. The utilities 
and the railroads, on the other hand, report fully 
on operating expenses. Some examples of adapt- 
able tables are given below. Notice how statistics 
of operating costs are matched against operating 
revenues. 



ANALYSIS OF 19— OPERATIONS 


$10,767,483 


- 


Sales made to customers 


119,478 




Other Income 

Total Sales and Income 


$10,886,961 


3,956,416 


- 


Paid for raw materials, power, fuel, and othe r 
purchased items which we used 

Available for the balance of the needs of 
the business and used as follows: 


$ 6,930,545 


$ 5,346,314 


- 


Wages and Salaries 


662,822 


- 


Taxes 


1 61 ,499 


- 


Wear and Tear on Plant and Equipment 


39,989 


- 


Interest on Borrowed Money 


365,420 


- 


Dividends to Stockholders 


354,501 




Retained in business for working capital, 
plant expansion, and other needs of the 
business 

[Sprague Electric Company] 



HOW ARMOUR'S INCOME IS DIVIDED — 19— 

Cents per 
Dollar 
of Sales 
Paid for raw materials, livestock, dairy and poultry 

products, etc., and supplies 74.72 

Paid to employees 1 2.70 

Paid for transporting our product to customers 1 .91 

Paid for maintenance and repairs, depreciation, mo- 
tive power, communications and traveling, insur- 
ance, advertising, etc 4.64 

Interest on debt .32 

Taxes, federal, state, local and foreign 3.1 5 

97.44 

Balance (earnings) 2.56 



100.00 



Salaries and wages 

Gasoline and oil (exclusive of taxes) 

Depreciation 

Taxes 

Repair and overhaul materials 

Rent 

Insurance 

Advertising and Public Relations . . 
All other expenses 

Total 



Percent of 

Total Expenses 

19— 19— 



100.0 



100.0 



COMPARATIVE STATEMENT OF RAILWAY OPERATING EXPENSES 




19— 


19— 


Increase 
Amount % 


Decrease 
Amount % 




$ 


$ 


$ 




$ 














Total railway operating expenses .... 


$ 


$ 






$ 







74 



REPORTING ON WHERE THE SALES DOLLAR WENT 



COMPARATIVE STATEMENT OF RAILWAY OPERATING REVENUES AND EXPENSES BY MONTHS 

(Exclusive of Taxes) 

19— - 19— 




19— 


19— 


Months 


Revenues 


Expenses 


Revenues 


Expenses 




















Ratio Operating Expenses, 















STATEMENT OF RAILWAY OPERATING REVENUES AND EXPENSES FOR THE YEARS 
ENDED DECEMBER 31 , 19— AND 19— AND COMPARISON 




19— 


19— 


Increase 
Amount % 


Decrease 
Amount % 




$ 


$ 


$ 




$ 











$ 


S 


$ 











RAILWAY OPERATING REVENUES AND EXPENSES FOR THE YEARS 19— TO 19— 



Expenses 



Net Revenue from 
Railway Operations 



EXCERPTS FROM 
COMMENTS ON COSTS 

The excerpts reproduced below, taken from re- 
ports that have wide public as well as stockholder 
distribution, use the cost-element approach to re- 
duce public misconception of company profits. 
They attempt to correct such common misunder- 
standing as: Business makes more profits than it 
actually does; business makes too much profit; 
profits are high because prices are high; if the busi- 
ness is big, the profits must be big; stockholders 
and the company benefit most when a company 
makes a profit over a period of years — not the em- 
ployee or the public; business is out to make more 
than it deserves. 

For other excerpts that indirectly treat the same 
subject, see pages 94, 140 et seq.; and 260 et seq. 



Stockholders' contributions and costs 

The stockholders of an industrial corporation com- 
bine their savings in a cooperative undertaking to 
bring together the tools of production, natural re- 
sources and human energy for the purpose of produc- 
ing goods and services for customers. The custom- 
ers, through their purchases, create employment and 
pay the costs of production. These costs consist of 
goods and services bought from others, the cost of 
human energy (wages and salaries), the cost of tool'; 
wearing out (depreciation, depletion and obsoles- 
cence), the cost of payments ordered by Government 
(taxes) and the cost of using the tools (amount re- 
maining for the stockholders who own the assets of 
the corporation). [Allied Chemical 6- Dye Corpora- 
tion] 

75 



REPORTING ON WHERE THE SALES DOLLAR WENT 



A large corporal ion's expenditures in terms of a 
small business 

John Smith and two other veterans raised $16,880, 
and with it they founded a business. That sum of 
money represents the tools of production and ex- 
change of their firm — the capital. Some of it was 
borrowed but the rest was their own venture money 
on which no interest was paid. In 1945, the John 
Smith business sold .$17,473 of goods to customers. 
Here is how the firm used their receipts: for products 
and services necessary in order to have the materials 
with which to do business, $6,701; for wages and 
other employment costs, $8,255; for wear and tear, 
$1,234; for interest, $35; for various kinds of taxes, 
$668. That kit them at the end of the year with 
$580. Their income as owners of the business was 
about 3 per cent on sales and less than 4 per cent on 
the sum they had raised. The record of the John 
Smith business in 1945 — if increased proportionately 
— was the record of U. S. Steel in 1945. [United 
States Steel Corporation] 



A comparison to bring out changes in values 

In reviewing operations for 1946, it is interesting 
to compare the results for 1926 and 1946 when the 
volume of our business was approximately the same. 
The price received for our product in 1946 was 3% 
less than in 1926. Hourly wage rates in 1946 were 
207% of 1926. Thus, the price received for a barrel 
of cement, which would have paid for 3.1 hours of 
labor in 1926, would only pay for 1.47 labor hours in 
1946. A barrel of cement would have bought thir- 
teen new cotton sacks in 1926, and only five new 
cotton sacks in 1946. In 1926, a barrel of cement 
would have bought 1.3 tons of coal at the mines for 
our Eastern plants; in 1946, approximately one-half 
ton. 

This distortion of relative values, brought about 
largely by government restrictions, price controls, and 
selfish political pressure groups, must be corrected if 
industry is to survive under our system of free enter- 
prise. [Alpha Portland Cement Company] 



MATERIAL, WAGES, TAXES, PROFIT, AND DEPRECIATION 
IN RELATION TO SALES 



■'.■'■w'RKSfi 



;■;.■; , 



.;; .: ■-- 



ww^m 




Z 
O 






m 






9JXXL 



: 



wjpedl 



KUDO. 



Courtesy, Bridgeport Brass Company 



Fi 3 . 44 



76 



Raw Material Costs and Retail Prices of Canned Fruits and Vegetables 



Index 350 



i Cttil uj Cerium Selected Raw Fruils 

and le^et„bles(1939'=100) 
•-■* Retail Price (1935-39 = 100) 

Chart prepared by our own research department 
from data furnished by U. S. Department of 
labor and California Cooperatice Crop Service. 




1929 1930 



1931 



1932 1933 1934 1935 1936 



1937 



As can be seen on this chart, the index of prices paid the 
growers for certain fruits and vegetables in 1946 had increased 
approximately 200 per cent over 1939. The average of retail 
prices of all canned goods throughout the year 1946 was 



1938 1939 1940 1941 1942 1943 1944 1945 1946 

approximately 41 per cent higher than the average for the 
1935-1939 period. Prices of such goods today, however, are 
higher than the average price shown for the full year 1946, 
reflecting the current market conditions. 

Courtesy, Hunt Foods, Inc. 



Fig. 45 



RAILWAY OPERATING REVENUES AND EXPENSES 1937-1946 

MILLIONS OF DOLLARS 



700 
600 
500 
400 
300 
200 
100 





LI 


+; 


_J_ 






i 










' ' 


' 


' 








































































•t^^^Aru rvDmurr 


_l_ 


_^^^^ ™ tArtNita 











Courtesy, New York Central Railroad Company 



Fig. 46 



77 



Here's a full glass of 
beer — representing 
Duquesne's Gross In- 
come for the calendar 
year ended Dec. 31, 1945. 



Government — National, 

State and Local — took 

the first big swig of 52% 

of the gross in Taxes. 



Operating Expenses — 
the cost of Materials, 
amounts paid out as 
Wages, etc., accounted 
for the next 44.46%. 

Courtesy, Duquesne Brnving Company 

Fi 3 . 47 



Left in the glass for 
transfer to Surplus Ac- 
count is but 3.54% — a 
sip of the original total. 



HOW THE SALES DOLLAR WAS DIVIDED IN 1946 



COST OF PRODUCTS AND OPERATING EXPENSES 
76.5* 



I PAYROLL 

16.5* 
I 

I 
I 



NET EARNINGS*- 
3. 4- * 




Courtesy, Xational Dairy Products Corporation 



Fi 3 . 48 



78 




Fig. 49 



Courtesy, Seattle Gas Company 



79 



HOW THE "LIS" DOLLAR* WAS USED 



* (after deducting cost of merchandise) 



WAGES 

AND 

SALARIES 



OTHER 
EXPENSES 



GOVERNMENT 
TAXES 







RETAINED 

IN THE 
BUSINESS 



RESERVED 
FOR CON- 
TINGENCIES 



m 



Including delivery and service contracts. 



Such as rent, publicity, supplies and general overhead. 
Paid or set aside 



Primarily to provide for expanding Accounts Receivable. 



Such as Inventory Depreciation. 



DIVIDENDS 
TO STOCK- 
HOLDERS 



BB milff 



42.2c 



30.2c 



11.5c 



12.3c 



2.0c 



1.8c 



100.0c 



Courtesy, Ludwig Baumann & Company 



Fig. 50 



80 



report of the president 




Courtesy, Link-Belt Company 



Fi g . 51 



81 



THE 1946 
REVENUE DOLLAR 




Courtesy, Louisville Gas and Electric Company 



Fig. 52 



82 



HOW EACH DOLLAR OF INCOME WAS USED 



34% « 



~W\ 






mm 



BALANCE 

,O.I*HOY««*«0« HOlD,M 

„*-OfflOYK PAYROUS 
, % _PA1D 10 STOCKHOLDERS 



I 




Courtesy, Union Bag & Paper Corporation 



Fig. 53 



83 



1946 DISTRIBUTION OF INCOME 



THE COMPANY 
RECEIVED 



. . . from sales of tires and 
other products. 



. . . from interest, royalties 
and other sources. 



TOTAL 




$616,508,162 



4,108,053 



$620,616,215 



OF THIS AMOUNT THE COMPANY PAID OUT OR SET ASIDE.. 



45.5% 
FOR MATERIALS 



27.9% 
FOR PAYROLLS 



8.3% 
FOR TAXES 




To purchase rubber, fab- 
rics, chemicals, fittings and 
other ingredients of Good- 
year products. 



Salaries and wages of the 
72,000 men and women, ex- 
clusive of executive offi- 
cers, who build and sell 
Goodyear products. 



Includes federal income, 
slate and local taxes, duties 
and social security taxes. 
(Excludes excise taxes) 



Courtesy, The Goodyear 1 ire &■ Rubber Company 



Fi 3 . 54 



84 



8.2% 
FOR OPERATING L~ 
EXPENSES 




1.8% 
FOR DEPRECIATION 




1.8% 
FOR DIVIDENDS 




•1% 
FOR EXECUTIVE 
COMPENSATION 




6.4% 
FOR RESERVE 



100.0% 
TOTAL 




Covers freight , rent on stores 
and branches, travel, inter- 
est, fuel, water, telephone, 
advertising and similar over- 
head. 



To take care of wear and 
lear on plants and equip- 
ment, and to replace ma- 
chinery as it wears out or 
becomes obsolete. 



Cash paid to approxi- 
mately 45,000 shareholders 
whose investment in Good- 
year securities has pro- 
vided properties, plants and 
machines that make pro- 
duction possible. 



Less than one-eighth of a 
cent out of every dollar 
covered total compensation 
of executive officers who 
direct the company. 



The balance, amounting to 
6.4 cents of each income 
dollar, was left in the busi- 
ness to meet contingencies, 
and opportunities to keep 
Goodyear growing. 



Fig. 54 Continued 



Courtesy, The Goodyear Tire & Rubber Company 

85 



qjteifhouncL 1946 OPERATING REVENUE 

. . . IVk&ve, it w&njb 



% 

OF TOTAL 



Payroll 



Parts, Fuel 
Tires 6 Other 
Expenses 



Operating 
Taxes 



Income 
Taxes 



Reserves 



Dividends 



Surplus 




10 15 20 25 30 35 

J J....I... I. J I I I I I » ( „ „ I I I I I I I i I I I I I, „ [ „„ |, „ 



t^ 



OtPRtttATION AMORTIZATION 



Retained 

in, the 
BuAineiA. 



OF TOTAL 



Operating Revenues 

Payroll 

Parts, fuel, tires and 

other expenses 
Operating taxes 
Income taxes (Federal 

and State) 
Reserves: 

Depreciation 

Amorti2ation 
Dividends: 

G reyhound Corporation 5.8 

Minority Stockholders 2.1 
Surplus (retained in 

the business) 



100.0# 
35.5 



27.0 
7.1 



4.4 

.3 4.7 



7.9 



7.0 



100.0S 



20 



'i""t i""r"! rr 

25 



'i r ("■"!■ 

30 35 



FiQ. 55 



Courtesy, The Greyhound Corporation 



86 



OUR INCOME DOLLAR 1946 



IT CAME FROM 



WAS DISBURSED FOR 



- qmi^ i iiip iiiii n ni u mi)- - 



TRANSPORTATION OF 
MERCHANDISE 

54< 




TRANSPORTATION OF 
COAL AND COKE 

22* 



LOCOMOTIVE FUEL 

6 



OTHER MATERIALS 
AND SUPPLIES 

9< 



ri l }' : ?- 



TRANSPORTATION OF 
PASSENGERS 



11< 



ALL OTHER SOURCES 

7< 



TAX REFUND 

6 



Fig. 56 



ALL OTHER 
OPERATING EXPENSES 

18c 

ALL TAXES 

6 



8< 



INTEREST ON DEBT 
AND FIXED CHARGES 



3c ALL OTHER PURPOSES 

Courtesy, The Baltimore & Ohio Company 



87 



WHAT WE DID WITH THE MONEY RECEIVED FOR THE WORK WE COMPLETED 
95- 



90 
85 
80 
75 
70 
65 
60 



2 55 

Q 50 



£ 45 

O 

3 

^ 40 



35- 
30 
25 
20 
15 
10 
5 



w,.rl Completed 
$68,290,628 
Work Competed ~" 



w, > L Completed 
J77.866.5I2 



Wri Completed 
.26,2.1.33° 




1940 



1942 



1943 1944 1945 

Courtesy, Otis Elevator Company 



Fig. 57 



DIRECT COST 



WHERE THE SALES DOLLAR WENT 

'®®®®®®®®®® 

®®®®®®®®®® 

46 < ' ®®®®®®®®®® 

®®®®®®®®®® 

®®®®®® 



17.9 < 



DEPRECIATION. 
DEPLETION. 
AMORTIZATION... 2.8 < 



TAXIS 13.6< 



f ®®®®®®®®®® 
\®®®®®®®® 

{®®0 



J®®®®®®®®®® 



\®®®d 

•7< {®®®(3 



SURPLUS . 



16< 



®®®®®®®®®® 
®®®®®® 



Courtesy, National Container Corporation 

Fig. 58 



88 



Itl 



I 



EXPRESS AND FREIGHT 



Atl OTHER EAKNINGS 



WHERE IT C.UIE E 



gasoune and an... 




WHERE IT WEST 



SAUMUSS, WA6U ANE> 



im 



I® 



«(*!« PAtTS ANB jUtflie . ' . $ «?,'».» 



m 



MSSENGfltt' M6AB AND EXPSNSES . J 30V.W.3I 



3.71 



Jl£N?AtS, TEt.fif'HOWf AND TEM> 

(JttAPH AMO MfSCtitANEOy* ... $ fflZttTl 



m 



m 



2.70 



7.72 



BtfBKtAtlON 



Att, OTHER EXPtNStS % m,5S!M 



-US 



• TOTAl,, BOSSES . , , :$?,««>>BJ!t 
«¥tB6M» W STOCSSHOtOHS ,. . $ SX>.9»,(» 



7.27 



'-'■'■/.' 



171. 



THAKSf ERIEO TO EAONEO S*Mtt.a$ . $ ZWAW& 



• .! 



rOTAl SSJWySUO 



Fig. 59 



Co«r(i?ij, Braniff Airways, Incorporated 

89 



REPORTING ON 
EARNINGS AND DIVIDENDS 



CHAPTER 8 



Business has become aware that the public vastly 
overestimates corporate profits. It is clear that 
some of this impression has been created by the 
publicity given to corporate profits before taxes, 
by labor organizations. 1 The corporation, in its 
own reporting, must do all it can to give the facts 
about profits clearly and to prevent misinterpreta- 
tion. The following: checklist should be used in 
considering possible misunderstandings of data on 



CHECKLIST FOR 
TREATMENT OF EARNINGS 

Do the words "profits" and "earnings," as 
used in the commentary, mean net prof- 
its after all charges, including taxes, have 
been deducted? They should. 

Does the report help break down the mis- 
conception that stockholders and top 
management are paid more than work- 
ers? 

Does it reflect management's concept of 
profits? 

Does the report show the relation of profits 
to benefits going to employees, manage- 
ment, consumer, community and stock- 
holder? 

Have aggregate profits been presented? 
Failure to include this figure would 
arouse suspicion. 

Has the dollar-sum of net profit been pre- 
sented as a percentage for each dollar of 
sales? The percentage figure gives a 
more correct impression. 

Would a better understanding of profits be 
obtained if net profits were shown as 
a percentage of invested capital? As a 
percentage of total assets? 

Are profits per share of stock indicated? 



Stockholders are especially interested in 
this figure in comparison with previous 
years. 

Is an explanation given of the increase or 
decrease in profits? Of losses? 

Has the tax story been told in relation to 
profits? See page 153. 

Are there special items affecting net profit 
that are not likely to recur? For ex- 
ample, special tax-credits or refunds, 
purchase and sale of operating subsidi- 
aries. If so, explain them. 

Have there been any changes in accounting 
procedure that affect the net-profits fig- 
ure? If so, explain them. 

What explanation shall be given of the ef- 
fect of the changing value of the dollar 
upon the amount of apparent profits? 
Accounting results are expressed in 
terms of dollars as though the dollar had 
a stable value. Without an increase in 
productivity of the company, the busi- 
ness may not have progressed an inch 
compared with an earlier period, in spite 



of higher net income. 



The average 



1 See "The Profit Delusion," in Trusts and Estates, May 1915, 
in which several charts that distort the story of corporate profits 
are reproduced from labor publications. 

90 



reader of the annual report knows that 
a 50% increase in his wages, compared 
with an earlier period, is no increase at 
all if the cost of living has gone up 50% 
in the same period. But does he apply 
this simple principle of economics to the 
affairs of the company? Probably not. 
Nor have companies generally attempted 
to deal in their annual reports with this 
accountancy limitation, except in re- 
porting the dollar volume of sales. In 
that respect, some companies have shown 
sales in units of products and have given 
information on fluctuations in prices of 
the products sold. They explain in this 
way that an increase in the volume of 
sales may be partly or wholly due to 



REPORTING ON EARNINGS AND DIVIDENDS 



price increases, and may not be the re- 
sult of increased productivity. See page 
61. See also Fig. 64, page 98. 

CHECKLIST FOR 
COMMENTS ON DIVIDENDS 

The following checklist can be used for points to 
cover in reporting on dividends: 

Amount distributed to stockholders. 

Amount retained in the business. Why 
was it withheld? 

Changes in dividend policies, if any. 

Explanation of stock dividends paid dur- 
ing the year; why such a distribution was 
made; how the dividend affected capital 
and surplus. 

Comment on arrears in dividends on pre- 
ferred stock, if any; when payment may 
be expected. 

If dividends exceeded current earnings, ex- 
plain how this was possible. 

In what form is the amount that has been 
retained in the business year after year? 

IDEAS FOR 

CHARTS AND GRAPHS 

A graphic presentation of profits may show the 
followino; information: 



1. 

9. 

3. 



Net profits over a period of years. 

Profits before and after taxes over a period of 

years. 

Distribution of earnings over a period of 

years: 

(a) Before taxes: showing taxes; dividends; 
amount retained in the business. 

(b) After taxes: showing dividends; amount 
retained in the business. 

Trend of net earnings, compared with divi- 
dends over a period of years. In such charts 
the amount of the year's profits left in the 
business is clearly visible. 
Trend of operating revenue compared with 
trend of operating and maintenance ex- 
penses and net income. 

Trend of company's earnings compared with 
trend of earnings of a comparable group of 
companies. See page 210. 
Net profits over a period of years showing 
shrinkage after adjustment for changes in the 
purchasing power of the dollar. 



8. Trend of net profits in relation to net sales. 

9. Ratio of net profit to net sales for a period of 
years. 

10. Profit per dollar of sales. This is usually de- 
picted also in the "income and outgo" charts 
discussed at page 7 1 . 

1 1. Earnings per share of stock over a period of 
years, compared with: 

(a) Dividends per share. 

(b) Profit on each dollar of sales. 

(c) Earnings retained in the business. 

(d) Taxes paid per share. 

1 2. Rate of return on invested capital, or ratio of 
net profit to balance-sheet net worth. 

13. Net earnings from domestic and foreign 
sources. 

14. Dividends per share of common stock. 

15. Payrolls and earnings: 

(a) Net profits compared with employees' 
compensation. 

(b) Dividends compared with employees' 
compensation. 

See pages 96 et seq. for examples of earnings 
charts. See page 155 for charts showing profits 
before and after taxes. 

IDEAS FOR 
STATISTICAL DATA 

Records of sales, earnings and dividends over a 
period of years are usually presented in the presi- 
dent's letter or in a separate statistical portion of 
the annual report. The examples given below 
show the variety of ways in which the figures may 
be presented. 



DIVIDENDS PAID TO STOCKHOLDERS 
Year Company Per Share 



Minority Interest 
in Subsidiaries 



TEN-YEAR RECORD OF DIVIDENDS PAID 



Year 



Cash 

Extra (% par) 



Stock 



Earnings per share, common stock 
Dividends per share, common stock 



19— 19— 

$ $ 

$ $ 



91 



REPORTING ON EARNINGS AND DIVIDENDS 



Profit Before Depletion and 

Depreciation 

Amount Per Sh. 



Provision for Depletion and 

Depreciation 

Amount % Per Sh. 



Net Profit 
Amount % Per Sh. 





STATEMENT OF DIVIDENDS PAID 






From Date of Incorporation May 20, 19 — to Dec. 31, 19 — 




Date Paid 


Dividend No. Rate 


Paid Stockholders 





COMPARATIVE SALES— TAXES— INCOME- 


-DIVIDENDS 


AMOUNT 




FEDERAL 




RETAINED 


FISCAL 


TAXES ON NET INCOME 




IN THE 


YEAR 


SALES INCOME AFTER TAXES 


DIVIDENDS 


BUSINESS 




%of 


%of 






Amount Sales 


Amount Net Income 





[Left Pa g e] 



FISCAL YEAR NET SALES 
ENDED JUNE 30 


NET INCOME 

BEFORE TAXES 

ON INCOME 


NET INCOME 
AFTER TAXES 
ON INCOME 


NET INCOME 

PER SHARE OF 

PREFERRED 

STOCK 


NET INCOME 
AVAILABLE FOR 
COMMON STOCK 

PER 
TOTAL SHARE 


[Right Page] 


DIVIDENDS PAID 
PREFERRED COMMON CURRENT 
STOCK STOCK TOTAL ASSETS 


CURRENT 
LIABILITIES 


WORKING 
CAPITAL 


NET 
FIXED ASSETS 



Sales 



RECORD OF SALES, EARNINGS, AND DIVIDENDS 

For Past Ten Years 

Earnings Per Share Shares Outstanding Dividends 

Net Earnings Common Stock Common Preferred Common Preferred Number of Stores 



SUMMARY OF EARNINGS, DIVIDENDS AND NET WORTH 


Year 


Sales and 

Other 
Revenues 


Income 
Before 
Federal 
Income 
Taxes 


Federal 

Income 

Taxes 


Net 
Income 


Preferred 
Dividends 


Available 

for 
Common 
Dividends 


Per Share of 
Common Stock 


Net 
Worth 


Earnings 


Dividends 























92 



REPORTING ON EARNINGS AND DIVIDENDS 



Fiscal 
Year 



COMPARATIVE SALES AND NET EARNINGS 



No. of 


Sales for 


Net Earnings 


Dividend 


Par 


Stores 


Year 


Per Share 


Per Share 


Value 







COMPARISON OF SALES, 


EARNINGS, 


AND SURPLUS 










Profit 






Earned 


Book Value 


Fiscal 




Before Income 






Surplus 


per Common 


Year 


Net Sales 


Income Taxes Taxes 


Net Profit 


Dividends 


(End of Year) 


Share 



TWENTY-YEAR RECORD OF SALES AND EARNINGS 


Year 


Income Before 
• Net Sales Federal Taxes Federal Taxes 


Net Earnings 


Income 

Available 

for Common 


Earnings 


Dividends 




Thousands of Dollars 


Per Common Share 





OPERATIONS 

For comparative purposes, the sales and profits for the fiscal years ended December 31 , 19 — and 19 — are shown as follows: 

Year Ended December 31, Increase 

1 9— 1 9— Decrease 

Net Sales $ $ $ 

Net Profit after depreciation, all special deductions, and provision for 

Federal and other taxes S $ 

Earnings per Share of Common Stock in hands of public $ $ $ 



SOME ITEMS OF IMPORTANCE TO STOCKHOLDERS STATED PER SHARE 



Computed on 



shares outstanding December 31, 19 — 



19— 



19— 



19— 



19— 



Federal Income Taxes 
Profits after Taxes 

Set Aside for Post- War 
Profits after "Set Aside" 

Dividends Paid 
Retained in the Business 



19- 



Average Average 

1941-1945 1936-1940 
War Years Pre- War Years 









STORES, 


SALES AND EARNINGS 19 


19— 

Combined 
Income Federal 














Wages 


Before Income 


Combined 


Earnings 


Stores 


Pairs 


Pairs 


Total 


and 


Federal and Excess 


Earnings 


per 


at 


Sold 


per 


Sales at 


Factory Combined Compen- 


I & E P Profits 


after 


Common 


Year-end 


Retail 


Store 


Retail 


sates Sales sation 


Taxes Taxes 


Taxes 


Share 



93 



REPORTING ON EARNINGS AND DIVIDENDS 



EXCERPTS FROM 
COMMENTS ON PROFITS 

To help remove the prevalent misunderstanding 
of what corporations earn, the commentary should 
do more than show the total net profit for the year 
and the net profit per share of stock outstanding. 
Some examples of helpful comments are given be- 
low. The examples of how profits have been ex- 
plained in reports to employees, given at pages 
265 et seq., can be used effectively in reports to 
stockholders. 



Earnings Are Not Idle Cash 

Right here I would refer to the Balance Sheet and 
ask all stockholders, particularly those stockholders 
who are employees of the company or one of its sub- 
sidiaries — What are earnings anyway? Right now 
there is a great hue and cry about them. On one 
hand, organized labor wants a huge slice of them. 
On the other, the government is threatening to sorely 
penalize those companies who do not hand over at 
least seventy per cent of them to the stockholders. 
Both demands arise from an utterly mistaken idea 
that earnings are cash lying around in a bank just 
itching to be taken for a ride. 

It takes money to do business. The more business 
we do the more money it takes. In 19 — we sold more 
goods than ever before — and used more money. In 
the first place there were generous wage increases dur- 
ing the year. We worked more hours and those 
hours cost more per hour. Not only did we use more 
yards, pieces, and tons of various materials, but they 
cost a lot more per yard, per piece, per ton. Further- 
more, no such volume could have been produced if 
a lot of new machinery, tools and equipment had not 
been bought and installed, to say nothing of replace- 
ments. Very few companies had the permanent capi- 
tal necessary to swing such a volume of business as 
was seen in 19 — . Management had but three courses 
to follow: to borrow heavily in one form or another, 
to use earnings, or to do both. The latter is what we 
did. 

Earnings buy the tools men use, the materials with 
which they work, the very implements by which, with 
their skill, they earn their living. And our so-called 
"Capital" is nothing but our and someone else's earn- 
ings put in our custody for our use only because those 
investors believed they would get a return commen- 
surate with the risk involved. 

Not only did we use a large share of our earnings 
to increase production, but we borrowed an addi- 
tional three million dollars which some day must be 
repaid. That's what happened to those so-called 
earnings. 

94 



Wages can be paid only from production and pro- 
duction only! If there is no production, there are 
no wages to be paid. And there is no production in 
one plant when the public (because of cost or other- 
wise) prefers to spend its money for the goods pro- 
duced in someone else's plant. There is an old say- 
ing: "What goes up must come down, upon your head 
or on the ground." To borrow all funds needed to 
an extent which would enable us and most com- 
panies to pay out dividends upwards of seventy per 
cent of so-called earnings in times like the present 
would guarantee inevitable failure. 

So look at the financial statements which show the 
tremendous increase in inventories, receivables (what 
our customers owed us at the year end), tools, ma- 
chinery and equipment, and taxes yet to be paid. 
They show the final results of the combined efforts 
of labor and management in 19 — . They show what 
we have to work with as we start 19 — . Fortunately, 
we ended 19 — in a strong position to meet the un- 
known future. I know of no better insurance for 
all concerned. [Simmons Company] 



The public's misunderstanding of profits 

Much of our present difficulty grows out of an ob- 
vious misunderstanding of industrial profits. Recent 
public opinion polls indicate that large numbers of 
persons believe that industry's profits range from 18 
per cent of sales volume in peacetime to 30 per cent 
or more in war — that shareholders receive from an 
enterprise an amount equivalent to that paid the 
workers. 

How erroneous these beliefs are is indicated by re- 
ports of the War Production Board, based on Treas- 
ury Department Statistics of Income, which show that 
all manufacturing and mining corporations in 19 — , 
the last year for which figures are available, had prof- 
its, after taxes, equal to 3.84 per cent of their sales 
volume — -that is slightly more than 33^ cents out of 
each dollar received for commodities and services. 
In 19 — , a peacetime year, the comparable figure was 
5.14 per cent. For Sun Od Company, on the basis of 
our consolidated reports, the Company's profit or net 
earnings in the war years 19 — to 19 — , inclusive, was 
2.8 per cent of gross operating income, compared with 
5.6 per cent for the normally accepted base period of 
19— through 19—. 

In industry, generally speaking, after bills for sup- 
plies, transportation and services are paid, after 
amortization and depletion charges, and after the tax 
collector takes his cut, workers receive between 85 to 
90 per cent of what is left — that is to say, that workers 
in salaries or wages receive seven to nine times as 
much as the combined amount paid shareholders and 



REPORTING ON EARNINGS AND DIVIDENDS 



plowed back into the business. This is a far cry from 
the prevalent belief that the shareholders are on any 
50-50 basis with the workers! [Sun Oil Company] 



How new profitable ideas become 
common property under private enterprise 

"Using everything but the squeal," isn't just a su- 
perficial characterization of this industry. It reflects 
one of the outstanding contributions of private enter- 
prise operating under constant pressure of the com- 
petitive search for profits. Its simple and valuable 
lesson bears repeating at this time when the nation 
has before it the problem of determining what kind 
of economy will best serve the national interest in the 
post-war period. The everlasting search for new 
products, new methods, new markets, has as its ob- 
jective the attainment of greater profits, but it also 
has an even more important result. The innovator 
cannot long retain the benefit for himself. Competi- 
tion sees to it that new ideas are soon adopted by 
others. Last year's profitable new idea becomes com- 
mon, industry-wide practice this year; and what were 
last year's profits to the innovator are this year a net 
gain to the supplier of raw materials or to the ulti- 
mate consumer." [Sivift & Company] 

Explaining a temporary, favorable tax situation 

Earnings 

Since "the tax carry-back refund'' previously men- 
tioned represents a reduction in the Company's tax 
liability for the year 19 — only, and is not a recurring 
item, its inclusion in the appraisal of the financial 
results of 19 — operations would produce a distorted 
and misleading picture, not only of the year under 
report, but also of the grave earnings situation which 
confronts the Company as it enters 19 — . 

Excluding the effect of the "tax carry-back refund," 
the 19 — ratio of Total Income to the Company's 
Average Capital Obligations and Surplus was 3.29 per 
cent, the lowest in more than thirty-five years, and 
compares with 5.13 per cent in 19 — . (Including the 
effect of "tax carry-back refund," this 19 — ratio was 
4.54 per cent.) 

Excluding the effect of "tax carry-back refund," 
earnings per share of capital stock were $3.63 in 19 — , 
xvhich is the lowest since 19— and compares with 
$6.59 in 19 — . (Including the effect of "tax carry- 
back refund," earnings per share of capital stock in 
19— were $5.68.) 

In view of the foregoing, it is obvious that the rate 
of the Company's earnings must be improved if it is 
to maintain its credit on a sound basis and attract 
new capital at reasonable rates. Likewise, since pay 
rolls constitute such a large percentage of total ex- 



penses in the telephone industry, the Company must 
obtain added revenues to meet the requirements of 
its existing wage structures. 

The urgency of the need for an immediate im- 
provement in the Company's earnings level becomes 
clearly apparent when consideration is .given the fact 
that, within the immediate future, the Company must 
obtain large sums of new capital to finance its current 
program of growth and expansion, which, in turn, is 
urgently needed to meet the present and rapidly ex- 
panding demands of the South for telephone service. 
In this connection, it should also be borne in mind 
that the Company cannot wait for periods of favor- 
able construction cost levels before actively under- 
taking the expansion of its plant and facilities, but 
must be governed by the demands of the people in the 
territory it serves. 

Accordingly, application to the appropriate regula- 
tory body for increased rates in each of the nine states 
in which the Company operates either has been made 
during the latter part of 19 — and the early part of 
19 — , or will be made in the immediate future 
months. The status of these matters is more fully 
described under RATES on Page 11 of this report. 
[Southern Bell Telephone & Telegraph Company] 



Explaining a loss item 



Prior to 19 — , 



Corporation practically com- 



pleted each year its drive of pulpwood down the 

River to its destination at . Beginning in 19— 

and continuing through 19 — and 19 — , large quan- 
tities of pulpwood were unavoidably left back in the 

tributaries and upper reaches of the River as a 

result of low water, shortage of manpower, and in- 
creased distances over which the wood was driven, 
some of the wood traveling 200 to 300 miles in the 
water before reaching its destination. In 19 — a spe- 
cial reserve was set up to cover loss through sinkage 
or other causes, and in 19 — this reserve was increased. 
The amount of the loss could not be determined until 
the wood could be driven out of the tributaries into 
the main river, and this was not possible until 19 — 
when, with better labor and water conditions for the 
drive, a much cleaner drive was attained than in the 
preceding years. Upon completion of a survey and 
checkup of wood on hand, it was found that the loss 
in the wood left back during 19 — to 19 — inclusive 
was equivalent to 7% of the total quantity driven 
during those years. 

As a result of the shrinkage in operating profit, and 
of charging a part of the pulpwood loss against the 
earnings of 19 — , the Corporation's net profit before 
income taxes was $1,016,381 smaller than in 19 — . 
This decrease was partly offset by the reduction in in- 
come taxes so that the net profit for the year, $422,- 
735, was $361,381 less than in 19—. 

95 



2.9 1 



F 




© 

N 

F 

1937 




PROFIT PER DOLLAR OF SALES 

1937-1946 



3.4? 




F 

- — x 

f 





1938 



3.8 



F) 




F 

? 





F 

1939 



3.20 




f 
? 





f 

- — > 

1940 



2.90 



F 



© 

F 

> — > 
1941 





F 

"N. 

F 




2.20 

© 

- — n 

F 




3.40 




2.2«: 2.20 2.20 

©© 
©© 

1942 1943 1944 1945 1946 



F 
F 





Courtesy, National Dairy Products Corporation 



Fi g . 60 



0ISP0S1 

PREFERRED DIVIDENDS 

I CASH DIVIDENDS ON COMMON STOCK 

|i|| STOCK DIVIDENDS 
L_J ON COMMON 5TOCK 

|| OTHER EARNED 

11 SURPLUS CHARGES* 




IN MILLIONS 



,- 



RETAINED 
H IN BUSINESS 




1939 



1940 



1941 



194> 



1943 



■■ ■ X5f*r*f ■ 



1945 



3.0 



194C 



r— 



^ Principally premium on 

redemption of Prefer r ed Stock 



cken from amounts 
iously retatt 
in business 



■1*7 I previously retained 

mm 



Courtesy, Celancse Corporation of America 



Fig. 61 



96 



Ratio of Net Earnings and Capital In- 
vested to Net Sales and Other Income 



Net Sales and Other Income 
Net Earnings 
Capital Invested 



Millions 

of 
Dollars 




1937 1938 1939 1940 1941 1942 1943 1944 *1945 1946 

* Exclusive ol $900,000 estimated refgnd of Federal excess profits taxes under "carry back" provision o( Revenue Act 

Courtesy, The Carborundum Company 

Fi g . 62 



millions ot dollar* 




CATERPILLAR" PROFITS 



EMPLOYEES' COMPENSATION 
Wages ami salaries including company 
contributions tor group insurance, — 

retirement plan, unemployment 
insurance and old age benefits — — — — 



rxiTl 



BO 



i 



i 



i 



i 



i 



I 






1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 




Fi 3 . 63 



rtesy, Caterpillar Tractor Co. 

97 



Million 
Dollars 



75 



50 



25 



HUMBLES NET INCOME 
Dollar Gain Offset by Rising Prices 



Net Income 



.Purchasing Power 
of Income 



(In 1935-1939 Dollars) 




1941 1942 1943 1944 1945 1946 



Courtesy, Humble Oil Reining Company 
Fig. 64 



CHART Vli STABILITY OF EARNING POWER 



Our 20-year record of earnings 
per share and the disposition of 
those earnings (adjusted fo 
present capitalization) 




DIVIDENDS < 



> DIVIDENDS 



1926 27 2B 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 



Vick became a publicly owned corporation in 1926. Since then — through good 
years and bad — it has unfailingly paid the regular dividend — with occasional 
extras. Earnings, per share, have mounted, but— during war years — we paid high 
tribute in taxes. Stability of Earning Power has been accomplished in the past. 
To perpetuate that Stability is our present objective. 



Courtesy, Vick Chemical Company 



Fig. 65 



CHART STJI VICK VS. THE DOW-JONES 



All things are relative; and therefore we present this chart — starting in 1930 — 
the last year before we commenced our campaign to secure product diversification. 

Hereon we show Vick's earnings in contrast with a theoretical share composed 
from the best-known American stock average — the Dow-Jones Industrial Average.* 



% 

120 
110 
100 

90 

80 

70 

60 

50 

40 

30 

20 

10 



-10 

1930 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 

Throughout the 15 years to date, Vick's earnings compare more than favorably 
with the earnings of this composite of industrial securities. War's excess pro6ts 
taxes — to which Vick is particularly susceptible — have narrowed the margin of 
advantage in recent years. The record, however, indicates that — despite high 
taxes — Vick has done at least as well in good years and infinitely better in 
depression years. 



































































: 


























\ 






























\ 






























V 


- -DOW- 


JONES 






















\ 
































i 






























\ 






























\ 






























\ 






























\ 



























































* Dow-Jones Industrial Average's earnings are the earnings of the thirty industrial companies 
comprising the group as reported for their respective fiscal years. Corresponding Vick years ended 
on June 30th of the years indicated. 

Courtesy, Vick Chemical Company 

Fig. 66 



PAYROLL AND PROFITS PER NET INCOME DOLLAR 



Wages and 
Salaries out of 
each dollar Mon- 
santo took i 
have increased 
over the last 
four years. 



& 




1942 1943 




Courtesy, Monsanto Chemical Company 

Fig. 67 



98 



WAGES AND SALARIES 

COMPARED WITH DIVIDENDS -1946 



41,799 EMPLOYEES 



• • • 



• • • 



II II J II Hill II 



67,308 STOCKHOLDERS 



lllllllllfflll 



WAGES AND SALARIES 



mmw% nmmm, 



122.4 MILLION DOLLARS 
DIVIDENDS 



4 



10.3 MILLION DOLLARS 



Courtesy, National Dairy Products Corporation 



Fi g . 68 



FOR EMPLOYEES 



TO GOVERNMENT 



PROFITS 








fat fite*l yc4it ended M«y 31 



1937 193J 1939 1940 1941 1947 1943 1944 1945 1946 



For focal yean ended May 31 



1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



For Fiical yean ended May 31 

Courtesy, General Mills, Inc. 



Fi g . 69 



99 



' 



NET INCOME-DIVIDENDS DECLARED 



1.800 




DECS* 



1942 



1943 



1944 1945 1946 

Courtesy, The National Sugar Refining Company 



Fig. 70 



ANNUAL WAGES, NET INCOME AND DIVIDENDS 

(IN MILLIONS OF I I I R S ) 



1937 



15SJ 



m.3 



1939 



64 



^T*S 11-3 



20 2 LOSS 




10 4 LOSS 



64 9 7 9 7 9 7 



Courtesy, New York Central Railroad Company 



Fig. 71 



100 



HOW INCOME* WAS SHARED 

(1946 compared with 1941, the last peacetime year) 



DISTRIBUTION 

1941 

DISTRIBUTION 

1946 



EMPLOYEES' SHARE 



RETAINED FOR 
USE IN BUSINESS 

V 



EMPLOYEES* SHARE 



COMMON STOCKHOLDERS' SHARE J 

'After deductions for cost of materials, supplies, taxes and other expenses. 

Courtesy, Copperweld Steel Company 

Fig. 72 



DISTRIBUTION OF NET INCOME 



$3,000,000 



$2,500,000 



$2,000,000 



$1,500,000 



$1,000,000 



$500,000 



Net Income 
After Taxes 




1941 1942 1943 1944 1945 1946 



Courtesy, International Minerals & Chemical Corporation 



Fig. 73 



fcate ojf R&tuhsL art 
CAPITAL INVESTED * 



^o* 




,,4? »4T 

Courtesy, International Harvester Company 



Fig. 74 



101 



48-YEAR RECORD OF EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK 



Year Earnings Dividends 

(a) (b) 



Earnings □ and Dividends ■■ in Terms of Present Stock 

(c) (d) 



1899. . . 


$27.46. 


$4.50 




1900. . 


. 30.99 


8.00 




1901. 


. 44.80. . 


8.00 




1902. . 


. 30.02. . 


8.00 




1903 . . 


. 17.76.. 


8.00 




1904. . . 


. 14.59 . 


8.00 




1905.. . 


. 15.17.. 


8.00 




1906. . . 


. 15.52 . 


8.00 




1907.. . 


. 10.17.. 


8.00 




1908. 


7.37.. 


8.00 




1909 (e) 


. 9.96 . . 


8.00 




1910.. . 


16.66 


8.00 




1911 . 


. 14.55 . 


8.00 




1912. . . 


. 16.20.. 


8.00 




1913. . . 


. 12.88 


8.00 




1914 . 


. 11.03 


8.00 




1915.. . 


. 11.56 . 


8.00 




1916.. . 


18.31 


8.00 




1917. . . 


26.50 . 


9.00 




1918. . . 


. 14.93 


8.00 




1919. . . 


. 20.93 . . 


8.00 




1920. . . 


. 16.62 . 


8.00 




1921. . . 


12.92. 


8.00 




1922. . . 


. 14.86. 


8.00 




1923. . . 


. 18.40 . 


8.00 




1924 . . . 


. 21.13. . 


8.00 




1925.. . 


20.49 


8.00 




1926 (c) 


6.14. 


2.75 




1927.. . 


6.41 


4.75 




1928. 


7.15 . 


6.00 




1929.. . 


. 8.97.. 


5.50 




1930 (c) 


. 1.90.. 


1.60 




1931. . . 


1.33 . 


1.60 




1932. . . 


.41.. 


.55 




1933. . . 


.38.. 


.40 




1934 . . . 


.59.. 


.60 




1935. . . 


.97 . 


.70 




1936. . . 


1.52 . 


1.50 




1937 


2.21.. 


2.20 




1938.. 


.96 . 


.90 




1939. . . 


1.43. 


1.40 




1940.. . 


1.95 


1.85 




1941. . . 


1.98. 


1.75 




1942. . . 


1.56.. 


1.40 




1943 . . . 


1.56.. 


1.40 




1944 . . . 


1.76. 


1.40 




1945.. . 


1.96.. 


1.60 




1946 


1.49 


1.60 






(a) Based upon average number of shares outstanding, (b) Cash dividends 
declared, (c) Number of shares increased four for one in May. 1926 and again in 
January, 1930. (d) Adjusted for common stock dividends, (e) Eleven months. 



The following dividends have been distributed in stock: 1902 — 66%% in common stock, to 
restore a 40% reduction made in 1898; 1912 — 30% in common stock; 1917 — 2% in common stock; 
1918-1921 inclusive — 4% annually in common stock; 1922-1925 inclusive — 5% annually in special* 
stock; 1924 — one share of Electric Bond and Share Securities Corporation stock; 1926 — one dollar 
m special* stock; 1932 — ]4 share of Radio Corporation of America common stock. 

♦Special stock, par value $10 a share, paying 6% annual dividend. Retired in 1935 at $11 a share and accrued dividend. 






Courtesy, General Electric Company 



102 



Fig. 75 






REPORTING ON 
FINANCIAL CONDITION 



CHAPTER 9 



The commentary on financial condition usually 
consists of remarks about the balance sheet. It is 
frequently limited to an explanation of the com- 
pany's working-capital position. However, since 
the balance sheet as a whole is studied to deter- 
mine the company's financial position, this section 
includes a checklist for whatever portion of the 
balance sheet management chooses to comment 
upon in the narrative or in the balance-sheet 
notes. 

It is good practice to introduce the remarks 
about balance-sheet items with an explanation of 
the policies followed by the company in stating 
the accounts. An example of such an introduc- 
tion is given at page 1 19. 

Comments on the income statement usually pre- 
cede those on the balance sheet. 

CHECKLIST FOR COMMENTARY 
ON FINANCIAL CONDITION 

Current assets 

(See also checklists for inventories and accounts 
receivable.) 

Amount compared with previous year. 
Explanation of any large increase or de- 
crease. 
Why a large amount of cash must be car- 
ried. 
Any unusual items in the current assets. 
Market value of marketable securities. 

Current liabilities 

Amount in comparison with previous year. 

Explanation of any large increase or de- 
crease. 

Any unusual items in the current liabili- 
ties. 

Working capital 

What happened to the working capital 

position during the year. 
Ratio of current assets to current liabilities 



compared with previous year. What the 

ratio means. 
Explanation of any increase or decrease in 

working capital. 
Explanation of improvement or falling off 

in the ratio. 
How increase in working capital compares 

with increase in sales. 

Inventories 

Amount of inventories in comparison with 
previous year. 

Comparison of quantities with previous 
year. 

How inventories were taken. 

How inventories were valued (explanation 
of the method used). 

Any change in valuation method; effect in 
making comparison with earlier years. 

Changes in cost procedure as it affects in- 
ventory. 

Why inventory figures are high or low. 

Condition of inventories. 

What management is doing to correct the 
inventory situation, if correction is nec- 
essary. 

Inventory policy. 

Losses, if any, taken on inventories. 

Reserves created for protection against 
price declines. 

Inventories in relation to sales (how many 
weeks' sales are represented in inven- 
tories). 

Accounts receivable 

Amount of accounts receivable in compari- 
son with previous year. 

Explanation of any large increase or de- 
crease. 

What amount represents loans to em- 
ployees. 

Per cent of year's sales uncollected at the 
end of the year. 

103 



REPORTING ON FINANCIAL CONDITION 



Average number of days' sales uncollected. 
Reserve lor doubtful accounts (how set up, 
adequacy, changes during the year). 

Investments and funds 

Major changes in holdings. 

How holdings are valued. 

Actual worth of investments in securities of 
subsidiaries. 

What part represents securities that will be 
liquidated to pay taxes and other liabili- 
ties. 

Special deposits and redemption fund. 

Advances. 

Investments in foreign subsidiaries (cost 
and current value). 

Write-offs of investments. 

Restorations of assets previously written 
off. 

Patents, copyrights, goodwill 
and other intangibles 

Changes in account during year. 

Why changes were made. 

Policy in regard to capitalizing patents, 
copyrights, trademarks and goodwill. 

Amortization policy. 

Property account 

What pioperties make up the fixed assets. 

Book value of properties, compared with 
previous year. 

Age and efficiency of buildings, machines 
and equipment. 

Replacement costs. 

Amount expended for physical facilities, 
compared with previous year. 

Expenditures on property by division, 
product or other unit. 

Number and location of plants. 

Facilities acquired by acquisition of con- 
trol of other companies. 

Why increase in facilities, if any, was neces- 
sary. 

How improvements were financed. 

What properties are under construction. 

When properties under construction will 
be put into operation. 

Where new facilities went into operation 
during the year. 

Properties disposed of during the year. 

How depreciation on plants was treated. 
See also checklist at page 73. 

Plans for future construction. 
104 



Reserves 

The following checklist should be applied to 
each reserve on the books of the company. (See 
also the checklist on depreciation, page 73.) 

What is the nature of the reserve: Is it (1) 
a deduction from an asset, (2) an actual 
liability, (3) a contingent liability or 
provision for a contingent loss, (4) a 
part of the net worth? 

Policy in establishing the reserve. 

Changes made in the reserve during the 
year. 

New reserves set up. 

Surplus 

What surplus represents. 

Changes in earned surplus during the pe- 
riod, explained. 

Changes in capital surplus during the year, 
explained. 

Financing 

Changes in capital stock structure — in- 
crease or decrease: 

(a) How accomplished. 

(b) Purpose. 

(c) Effect. 

(d) Disposition of treasury stock; 
how treated in the accounts. 

Changes in long-term indebtedness — in- 
crease or decrease: 

(a) Old loans paid off. 

(b) New loans made: amount, how 
obtained, cost, burden of loan, 
purpose, use of funds. 

(c) Refinancing: reasons, costs, sav- 
in s;s. 

(d) Reduction in outstanding long- 
term obligations. 

Short-term borrowing — increase or de- 
crease: 

(a) Old loans paid off. 

(b) New loans made: amount, how 
obtained, cost, purpose. 

Acquisition of interests in other com- 
panies: 

(a) Name of acquired company. 

(b) Amount acquired and control. 

(c) Purpose of acquisition. 

(d) Result of acquisition. 
Funding of Federal tax obligations by pur- 
chase of U. S. government securities. 



REPORTING ON FINANCIAL CONDITION 



Book value per share of stock 

Book value per share at the end of the year. 
How book value is determined. 
How book value has increased over a pe- 
riod of years. 

IDEAS FOR 

CHARTS AND GRAPHS 

Ideas for graphic treatment of balance-sheet in- 
formation are presented here in five groups: 

Total assets — current assets: 

1. Total assets at the end of each of a number of 
years. 

2. Total current assets at the end of each of a 
number of years. 

3. What per cent current assets were of net sales 
at the end of each of a number of years. 

4. Trend of cash, receivables and inventories 
over a period of years. 

5. Inventories at a particular time for a number 
of years. 

6. Inventory analysis by months showing raw 
material, work in process and finished prod- 
ucts and supplies. 

Working capital: 

1. Current assets and current liabilities at the 
end of the current year and the previous year 
— ratio of current assets to current liabilities. 

2. Working capital at the end of each of a num- 
ber of years. 

3. Trend of working capital compared with 
trend of funded debt over a period of years. 

4. Net worth and part represented by working 
capital, at the end of each of a number of 
years. 

5. Working capital compared with senior capital 
— long term debt and preferred stock. 

Fixed assets: 

1. Book value of real estate, plant and equip- 
ment at the end of each of a number of years. 

2. Net expenditures for plant additions during 
each of a number of years. 

3. Amount of additions to property during each 
of a number of years, compared with deprecia- 
tion and depletion for those years. 

4. Relationship of plant and property invest- 
ment to total debt, notes payable and bonds. 



5. Number of freight and passenger cars pur- 
chased during the year. 

6. Comparison of factory floor space for a num- 
ber of years. 

Capital structure — total investment — net worth: 

1. Changes in total capitalization over a num- 
ber of years. 

2. Borrowed capital, preferred stock, common 
stock and surplus at the end of each of a 
number of years. 

3. Amount of capital stock and surplus at the 
end of each of a number of years. 

4. Net worth at the end of each of a number of 
years, and its composition. 

5. Growth of surplus over a period of years. 
(See also earnings charts at pages 96 et seq.) 

6. Trend of funded debt over a number of 
years. 

7. Funded debt over a number of years com- 
pared with annual interest charges for each 
year. 

8. How a general mortgage was changed from a 
third lien to a first lien. 

9. Rate of return on invested capital. (See 
page 90.) 

10. How much capital stockholders have in- 
vested per employee. (See page 160.) 

Other facts: 

1. Book value of common stock at the end of 
the year covered by the report. 

2. Increase in book value of stock over a period 
of years. 

3. Price trend of company shares. 

See pages 122 et seq. for examples of charts 
showing financial condition. 

IDEAS FOR 
STATISTICAL DATA 



A company's financial position is indicated in its 
balance sheet. The annual report, however, may 
offer supplementary statistics relating to items in 
the balance sheet, for the following reasons: (1) 
To show the stockholders and prospective inves- 
tors how competently management has been han- 
dling the invested capital, (2) to aid vendors who 
may use the report in granting credit to the com- 
pany, (3) to explain the significance of certain 
items in the balance sheet. 

The ideas for statistical data presented here fit 
into various parts of the annual report. Those 

105 



REPORTING ON FINANCIAL CONDITION 



dealing with working capital are best offered as a 
part of the narrative in the commentary on finan- 
cial condition. Those that explain specific items 
in the balance sheet may be presented as balance- 
sheet schedules in the financial statements portion 
of the report, or in the commentary. Statistics of 
progress, made up of selected items from succes- 
sive balance sheets and the profit-and-loss state- 

TABLES RELATING TO 
WORKING CAPITAL 



ment may also be offered to show the company's 
financial condition. Such tables stand on tlleir 
own and can be included in any part of the report. 
Three groups of ideas for statistics are therefore 
given below: (1) Those relating to current finan- 
cial position, that is, working capital, (2) those 
explaining balance sheet items, (3) statistics of 
progress. 



COMPARISON OF WORKING CAPITAL 

Current assets: 

Cash $ 


19— 


December 31 

$ 


19— 








$ 




$ 




Deduct — Current liabilities, less at December 31, 19 — , $ 




$ 










$ 



















CHANGES IN WORKING CAPITAL 

Additions to Working Capital: 

Profit for the year before providing for depreciation, for loss on Company of Ohio, and for other 

non-cash items $ 

Borrowed on purchase money mortgage 

Salvage from disposal of fixed assets 

Realization in cash and other current assets from Company of Ohio in excess of advances during 

the year 

$ 

Deductions from Working Capital: 

Additions to fixed assets $ 

Sinking fund payment due June 1 , 1 9 — 

Provision for repayment of purchase money mortgage 

Cash dividends — 60 cents a share 

Miscellaneous 

$ 

Increase in working capital $ 



Year 



Current 
Assets 



Current 
Liabilities 



Current 
Ratio 



Capital 
Expenditures 



106 



REPORTING ON FINANCIAL CONDITION 



TABLES EXPLAINING 
BALANCE SHEET ITEMS 

Cash 



The complete story with respect to the cash funds received during the year and how they were used by the Company is set 
forth in the following schedule. 

Funds Provided by Operations: 

Net Earnings $ 

Charges against net earnings not requiring cash outlay: 

Depreciation 

Sundry items relating to disposition and adjustment of plant and equipment 

Dividends 

Cash Funds Received — Net $ 

Funds Required for Increased Volume and Expanding Activities: 
Increase in: 

Accounts receivable $ 

Inventories 

Plant and equipment 

Deferred charges and sundry items — net 

Cash Funds Expended — Net 

Decrease in cash resulting from operations $ 

Funds required to purchase preferred stock retired or held in treasury 

Decrease in Cash — Net $ 



Inventories 



Inventories, before reserves, of 
Year Value 



INVENTORIES 

Company and subsidiary manufacturing companies at the end of the year: 

Year Value Year Value 



INVENTORIES OF 
CRUDE AND REFINED PRODUCTS 



Barrels 



Amount 



%of 
Current Assets 



December 31 , 



19— 



19— 



Increase 
Decrease 



Raw materials $ 

Goods in process 

Finished goods 

Supplies 

Premiums 

Totals $ 



107 



REPORTING ON FINANCIAL CONDITION 



Tangible and intangible property 



PROPERTY SCHEDULE— DECEMBER 31, 19— 

TANGIBLE PROPERTY— Segregated and valued as of December 31, 19—, in accord- 
ance with authority and direction of the stockholders at a special meeting held on 
May 21, 19—: 

Plants, mines and other tangible properties at December 31,1 9 — 

Less amounts included therein for properties which have been retired and/or sold 
since December 31 , 1 9 — 

Additions other than emergency facilities since December 31 , 19 — , at cost 

Less retirements and/or sales of additions since December 31 , 19 — 

Depreciation and depletion since December 31 , 1 9 — 

Less depreciation and depletion since December 31, 19 — , on property retired and/or 
sold after that date 

Emergency facilities additions during 1 9 — , at cost 

Less depreciation and amortization on emergency facilities 

Net tangible property 

INTANGIBLE PROPERTY— Segregated and valued as of December 31, 19—, in accord- 
ance with authority and direction of the stockholders at a special meeting held on 
May 21, 19—: 

Good-will, patents, licenses, etc., at December 31 , 1 9 — 

Less amounts included therein for patents, licenses, etc., which have become fully 
amortized 

Additions since December 31 , 1 9 — , at cost 

Amortization since December 31 , 1 9 — , on unexpired patents, licenses, etc 

Net intangible property 

Total net property as shown on balance sheet 



Land, Buildings, Machinery and Equipment 

19— 19— 19— 
Cost: 


19— 


19— 










Deduct: Portion of above cost allocated to 
operations to date shown: 












Cost not allocated to operations to date shown: 















108 






REPORTING ON FINANCIAL CONDITION 



Description 
Production: 










PROPERTIES AND EQUIPMENT 

December 31, 19— 

Depreciation, 
Depletion and 
Gross Amortization 
Book Figures Reserves 

$ $ 


Net 
Book Figures 

$ 


inve 
uary 


Comparative Net 

Book Figures 

December 

31,19— 

$ 

1 


Undeveloped properties 




















Total, per balance sheet 

The gross book figures 
change, except for the boo 
exceptions the net effect of 


of properties and 
k figures of certai 
which is relatively 


$ 


$ 


$ 


$ 


equipment represent cost in cash, bonds 
i properties and equipment which were 
unimportant. 


capital stocks or 
reduced as of Jan 


stments given in ex- 
1, 19 — , and other 







PROPERTY 


$ 


19— 


$ 


19— 


Add: 

Capital expenditures during year: 
Farm implement works and twine 
Motor truck and tractor plants . . 


mills 






$ 




$ 










Mines, furnaces, steel mills, etc. . 








$ 




S 




Total 

Deduct: 

Depletion of iron ore and coal . . . . 








$ 




$ 




$ 




$ 












$ 




$ 




Balance at end of year, before reserve 


for depreciation . 






$ 




$ 

















A summary of the capital assets and related reserves as at December 31 , 19 — and 19 — is as follows: 

19— 



19— 



Classification 

Lands, leases, easements and rights: 

Not subject to depletion or amortization 
Subject to depletion or amortization . . . 

Leasing and exploration costs 

Plant and equipment 

Incomplete construction 

Marine equipment 

Miscellaneous property , 



Gross 
Book Value 



Reserves 



Net 
Book Value 



Net 
Book Value 



109 



REPORTING ON FINANCIAL CONDITION 



FIELD 



Leases and Royalties in United States Owned at December 31, 19 — 



County 



Stats 



Net Acres 



Net Wells 



Operating Income 
19— 



ACREAGE 
State 



19— (Total) 

Gas Rights Owned 



Leased 



19— (Total) 

Total 



WELLS 
State 



Prod'g Wells 
12/31 / — 



19 (Number) 



Drilled or 
Acquired 



Sold or 
Abandoned 



Prod'g Wells 
12/31/— 



19 (Number) 

Wells 
Drilling 



Undeveloped leases 

State Acres 



Interest owned 



In addition, we have undivided interests as follows: 

State Total Our Interest Wells 



A summary of the intangibles at December 31, 
Classification 


19— 


and 19 — is as follows: 

19— 




19— 


Gross 
Book Value Reserves 

$ $ 


Net 
Book Value 
$ 


Net 
Book Value 

$ 






$ $ 


$ 


$ 









Securities owned 



SCHEDULE OF INVESTMENT STOCKS, BONDS AND 


ADVANCES 


December 31, 19 — 




SECURITY DESCRIPTION 


CARRYING VALUE 


Per Cent 




Name Kind Owned 


Basis Amount 



INVESTMENTS AND ADVANCES— AFFILIATED COMPANIES 



Description 
Investments in capital stocks (at cost or below, less allocated reserves): 

Companies more than 50% owned 

Companies not more than 50% owned 

Advances, less allocated reserves 



Total, per balance sheet 



110 



December 31 , 
19— 19- 



REPORTING ON FINANCIAL CONDITION 



Paper and pulp and other companies (at cost less write-downs and reserves of $ 

Book value of asset held by Liquidating Trust established January 31 , 1 9 — 
Securities of miscellaneous subsidiaries not consolidated (at cost less reserve of $— 
United States Government and municipal bonds: 

Pledged under long term mortgage or deposited as guarantees ($ principal 

amount, at cost or quoted market value, whichever is lower) 

Unpledged ($ principal amount, at cost less write-down) 

Dominion of Canada and Provincial bonds: 

Deposited as guarantees ($ principal amount, at cost) 

Unpledged ($ principal amount, at cost) 



on certain investments) $ 

—J"!!!!!!:!!!!!!!! 

$ 



Total 



Funds 



SINKING FUNDS 
Following is a statement showing the operations of the sinking funds for the year 

Face Value of Securities Purchased by Sinking Total Face 
Funds or Called for Retirement During 19 — Value of 

Securities 
Purchased by Called for Retired 
Character of Security Sinking Funds Retirement Total in 19 — 


ended December 31, 19 — : 

Cash Deposited with Trustees for 
Payment of Interest from Last 
Interest Payment Dates of Secu- 
Premium rities to Dates of Redemption 


on Securities 

Purchased for Dates of 
Retirement Redemption Amount 



PURCHASE FUND FOR 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK 

Cash set aside November 20, 1 9 — $ 

Less expended up to May 20, 1 9 — , in purchase of shares 

Balance returned May 20, 1 9 — to general corporate funds $ 

Cash set aside April 1 , 1 9 — $ 

Less expended up to October 1 , 1 9 — , in purchase of shares 

Balance $ 

Cash set aside October 1 , 1 9 — 

Less expended up to December 31 , 1 9 — , in purchase of shares 

Balance January 1 , 1 9 — $ 

Total shares purchased for retirement 

Net shares outstanding 



Reserves 



for 



REPLACEMENT RESERVES 

Provided 
Balance in During 19 — from 

Reserve Earnings 

January 1, and by Charges to 

19 — Current Expenses Total 



Charges to 
Reserves 
in 19— 



Balance in 

Reserves on 

December 31 , 

19— 



111 



REPORTING ON FINANCIAL CONDITION 



Depreciation Reserve 
The following table shows changes in the depreciation reserve during the year 19 — . 


$ 


























$ 









RESERVES 
DEPRECIATION: 

The annual deductions from earnings for depreciation provide for the impairment and consumption of the capital assets utilized in 
production and distribution. Such depreciation is based on rates confirmed by experience in this industry. 

19— 19— 

Balance at beginning of year S $ 

Add provision for year 

Total $ $ 

Deduct depreciation on property sold, dismantled, etc 

Balance at end of year $ $ 






CONSOLIDATED RESERVES FOR DEPRECIATION, MAINTENANCE, REPAIRS AND RENEWALS 



Balance 
December 
31, 19— 



Coke ovens, blast furnace stacks 
and stoves, melting furnaces and 
rolling mill heating and treatment 
furnaces $ 

Rolls, moulds and stools, charging 
boxes, flasks and annealing 
boxes and bottoms 

Emergency facilities (Special amor- 
tization) 

All other property 

Totals $ 



Totals previous year 



Credits During the Year 



Provided 
through 

charges to 
income 



Provided 
through 

charges to 
cost of 
billings 

and 
general 
expense 



Proceeds 

from 
property 

and 

equipment 

dismantled, 

retired or 

sold 



Charges During the Year 



Expenditures 

for 

maintenance, 

repairs and 

renewals, 

etc. 



Property 

and 

equipment 

dismantled, 

retired or 

sold 



Balance 
December 
31,19— 



112 



REPORTING ON FINANCIAL CONDITION 



SPECIAL MAINTENANCE: 

This reserve provides for relining of blast furnaces, open-hearth furnaces, maintenance of docks and harbors, and other extraordinary 
renewals and replacements. 

19— 19— 

Balance at beginning of year $ S 

Add provision for year, charged to cost of goods sold 

Total $ $ 

Deduct: 

Relining, renewal and other charges during year 

Balance at end of year $ $ 



DEVELOPMENT AND EXTENSION: 

This reserve is maintained for extraordinary programs involving large expenditures periodically required for tooling and pattern 
equipment. 

19— 19— 

Balance at beginning of year S $ 

Add provision for year, charged to cost of goods sold 



Total $ $ 

Deduct expenditures for tooling and pattern equipment for new model tractors 
and motor trucks 



Balance at end of year 



Changes in the reserves for cash discounts, returns and allowances and doubtful receivables during the years ended October 31, 
19— and 19— follow: 



Balance at Beginning o f Year 

Provision Charged to Operations 

Collection of Accounts Previously Charged off and other Recoveries 



Total 



$ 


19— 


S 


19— 


Increase 
Decrease 
$ 


$ 




s 




S 



Deduct: 

Cash Discounts Allowed 

Volume Discounts and other Allowances 

Uncollectible Accounts and Notes Charged off 

Surplus Credit — Reduction of Reserves Provided in Prior Years 



Total 

Balance at End of Year 



This Balance Represents Reserves for: 

Cash Discounts , 

Returns and Allowances 

Doubtful Receivables 



Total 



113 



REPORTING ON FINANCIAL CONDITION 



FOREIGN INVESTMENT 
This reserve provides for possible losses on the investment of the Company in foreign subsidiaries. 

19— 19— 

Balance at beginning of year $ $ 

Add: 

Provision for year 

Special provision transferred from surplus 

Total 

Deduct portion applied against investment in enemy-occupied Europe 

Balance at end of year 

LOSSES ON RECEIVABLES: 

This reserve provides for losses which may ultimately be sustained in the collection of notes and accounts receivable. 

19— 19— 

Balance at beginning of year $ $ 

Add: 

Provision for year 

Recoveries during year of receivables previously written off 

Total $ $ 

Deduct notes and accounts charged off 

$ $ 

Deduct approximate amount of recoveries during year of receivables previously 
written off, restored to income 

Balance at end of yea- S $ 



Fire Insurance 

The Company carries a reasonable portion of its own fire insur- 
ance risks at branches and motor truck sales and service stations. 
Modern methods of fire prevention and protection are rigidly 
enforced at the Company's properties 

19— 19— 

Balance at beginning of year $ $ 

Add provision for year, charged 

to operations 

Total 

Deduct losses by fire, etc. dur- 
ing year 

Balance at end of year 



Capitalization 

Summaries of capital structure, including capital 
stock, funded debt and other outstanding long- 
term debt, when not included as part of the finan- 
cial statements, may be presented separately in the 
annual report. Several suggested arrangements 
are given below. 



Inventory Reserve 

A substantial part of the Company's capital is at all times in- 
vested in inventories. This reserve is to provide against the 
effect of cyclical price declines. 



19— 



19— 



Balance at beginning of year 

Add provision for year . . 

Balance at end of year 

114 



STOCKS, BONDS AND NOTES OUTSTANDING 
DECEMBER 31, 19— 



Title of security 



Par Value 



Increase or Decrease 
During Year 



SUMMARY OF CAPITAL STRUCTURE AND 

DIVIDEND RECORD OF THE CO. AND 

PREDECESSOR COMPANIES 



Year 



Shares 
Outstanding 



Dividends 
Per Share 



Total 
Dividends 



REPORTING ON FINANCIAL CONDITION 



REDUCTION OF CAPITAL 

During the year the company reduced its outstanding capital stock through purchases as follows: 

Cost 

No. of Shares Description Par Value Average Per Share Total 

— Preferred, Series A, 2% $ $ $ 

— Preferred, Series C, 6V2% 

— Preferred, 5% Series 

Common 

Total $ 

The excess of the par value of this stock over the cost thereof, amounting to $ , was credited to Paid-in Surplus. 



CONSOLIDATED FUNDED DEBT 


Name of Issuer 


Title of Issue 


Interest 

rate in 

percent 


Outstanding 

per 
balance sheet 


Owned by Corpora- 
tion or by a Subsidiary 
Company 


Date of 
maturity 


In Treasury 


Pledged 

















Funded Debt— December 31, 19— 


TITLE OF SECURITY 


Date of 
Maturity 


Total 
Issued to In Hands of Company 
Rate Dec. 31, In 
Per Cent 19 — Retired Treasury Pledged 


In 

Sinking 

Fund 


In Hands 
of Public 


Interest on 
Securities 
in Hands 
of Public 





The market trend for the six year period from 19 — through 19 — is indicated by the following table of quotations on all of the 
securities of the Company outstanding during the year 19 — : 


First and refunding Mortgage 
Bonds, 5% Series A, due Oc- 
tober 1, 19 — 


19— 19— 


19— 


19— 19— 


Low 


High 


Low 


High 


Low 


High 


Low 


High 


Low 


High 


$ 


$ 


$ 


$ 


$ 


$ 


$ 


$ 


$ 


$ 
















• 










115 



REPORTING ON FINANCIAL CONDITION 
STATISTICS OF PROGRESS 



HIGHLIGHTS FOR THE LAST TEN YEARS 




Profit and Loss Accounts 


















Net Profit 


















Preferred 


Net Profit 


Applica 




Common 














Stock 


Applica- 


ble to 


Common 


Stock 


Earnings 






Profit 


Income 


Net Profit 


Dividends 


ble to 


Common 


Stock 


Dividends 


Retained 




Net 


Before 


Tax 


Carried to 


Require- 


Common 


Stock 


Dividends 


Paid 


in 


Year 


Sales 


Taxes 


Provision 


Surplus 


ments 


Stock 


per Share 


Paid 


per Share 


Business 


Financial Status 










Investments, 
















Plant and 


Intangibles, 
Prepaid 






Common 


Common 
Stock 




Working 




Equipment 


Expenses, etc. 


Preferred 




Stock 


Equity 


Year 


Capital 


Ratio 


(Net) 


(Net) 


Stock 




Equity 


per Share 



















A DECADE OF DEVELOPMENT 


Year 


Average Number 
of Customers 
During Year 


Generating 

Capacity 

(Kilowatts) 


Peak Demand 
(Kilowatts) 


Sales 
(Kilowatt-hours) 


Electric 
Operating 
Revenues 


Rate Reductions 

Effective for 
Succeeding Year 















FINANCIAL RECORD ON PER SHARE BASIS 



Year 



Sales 



Total Taxes 



Earnings Before 
Taxes on Income 



Earnings 
After Taxes 



Dividends 
Paid 



STATISTICAL DATA FOR THE 



YEAR PERIOD ENDING DECEMBER 31, 19- 



Year 



BALANCE SHEET STATISTICS (in thousands of dollars) 

Gross Net Current Total Gross Depreciation & 

Total Working Asset Invested Fixed Amortization 

Assets Capital Ratio Capital Assets Reserves 



Year 



INCOME STATISTICS (in thousands of dollars) 
Net Operating % of Depreciation & Income Contingency Net Post War 

Sales Income Sales Amortization Taxes Reserves Income Refund 



116 



REPORTING ON FINANCIAL CONDITION 



FIVE-YEAR DIGEST OF COMPANY'S OPERATIONS 




19— 


19— 


19— 


19— 


19— 


Retail Sales (Net) 










Wholesale Sales (Net) 




Total Sales (Net) 


Net Income Before Income Taxes 


Income Taxes 


Net Income After Taxes 


Dividends Paid 


Income Retained in Surplus 


Net Income per Share Before Income Taxes 


Income Taxes per Share 


Net Income per Share 


Dividends Paid per Share 


Book Value per Share 


Net Working Capital 


Net Worth 


Merchandise Inventories 


Notes & Accounts Receivable (Net) 


Total Taxes 


Number of Employees 


Number of Company-Owned Stores 


Number of Dealers 


Number of Wholesale Houses 


Number of Stockholders 


I 











Ratios: 



19— 



19- 



19— 



19— 



19— 



Current Ratio 

Sales to Net Worth 

Sales to Net Fixed Assets . . . 
Sales to Working Capital 

Sales to Inventories 

Sales to Accounts Receivable 

Net Income to Sales 

Net Income to Net Worth . . . 



117 



REPORTING ON FINANCIAL CONDITION 



BALANCE SHEET AND INCOME ACCOUNT COMPARISONS 

For your information comparative data relative to the balance sheet and income account has been prepared, after giving effect 
where necessary to a reclassification of certain items in prior years. 


Year End 
Dec. 31 


Excess of Cash and 

Gov't Securities Over 

Current Liabilities 


Ratio of Current Assets 
to Current Liabilities 


Net Working Capital 


Percentage of Year End 
Inventories to Sales 
















Year End 
Dec. 31 


Percentage of 

Fixed Assets to 

Total Assets 


Bank Loans 

and 
Funded Debt 


Net Earnings as Reported 


Dividends Declared 


Per 
Sales Dollar 


Per 
Common Share 


Per 
Sales Dollar 


Per 

Common Share 

















Net 
Earnings 



CAPITAL STOCK STATISTICS (per share) 



Income 
Taxes 



Dividends 
Paid 



Book 
Value 



Price Range 



High 



Low 



EXCERPTS FROM COMMENTS 
ON FINANCIAL CONDITION 

The excerpts that follow have been selected be- 
cause they show what can be clone in the com- 
mentary with items that usually receive scanty 
treatment in annual reports. 



Practices reflected in the financial statements 

The balance sheet and summaries of income and 
surplus of General Motors Corporation and its con- 
solidated subsidiaries for the year ended December 
31, 19 — , in comparison with the statements of the 
preceding year, are shown on pages — to — of this 
report. Subsidiaries which, in accordance with past 
procedure, are not consolidated in the financial state- 
ments of the Corporation are listed on page — , to- 
gether with other investments and miscellaneous as- 
sets. 

It has been the practice of the Corporation over a 
long period of years to include in the income state- 
ment all revenues, income, costs, expenses, losses and 
provisions for contingencies which are applicable to 
the current year's operations even though some are 
not definitely determinable in amount at the time. 
It has also been the practice of the Corporation to in- 
clude all prior year adjustments in the income state- 
ment for the current year. When relatively signif- 
icant, the nature and amounts of these items are 

118 



stated. The practice of charging or crediting such 
adjustments to the earned surplus account has never 
been followed by General Motors. 

The Corporation's procedure in making provision 
for reserves is fully explained under "A Reserve Pol- 
icy" in the 19 — annual report: ". . . reserves are de- 
rived from charges against earnings and represent a 
provision for some foreseen expense or loss of asset 
value properly applicable to the period in which such 
charge against earnings is made, but which cannot be 
definitely established until some time in the future. 
When the facts are finally established, the amount 
involved, having been previously provided for, may 
be charged to the reserve and therefore does not affect 
the profits of the business for that particular period. 
If the amount finally determined is in excess of the re- 
serve provided, the difference is charged against oper- 
ations of the current period and hence reduces such 
profits. If the amount is less than provided for, the 
established excess of the reserve is restored to earnings 
and the profits in the particular period involved, as 
reported in the income statement, are increased ac- 
cordingly. Any reserves set up currently to cover 
anticipated losses and expenses, even though they are 
attributable to current operations, are not an allow- 
able deduction in determining the amount of income 
upon which Federal income taxes are paid. The 
amount of each loss or expense becomes an allowable 
item for tax purposes only when it is actually realized 
and determinable." 

General Motors has also followed the practice of 
making provision currently for income and excess 



REPORTING ON FINANCIAL CONDITION 



profits taxes by charging income with the amounts 
estimated to be payable for the year under the ap- 
plicable tax laws. In every year there are necessarily 
differences between income subject to taxes and the 
amount of income reported in the income statement. 
The major differences relate usually to provisions for 
anticipated losses and expenses and use of reserves 
previously provided, as discussed above, and to the 
amount of depreciation and amortization provided 
for real estate, plants, and equipment. The amounts 
of depreciation and amortization provided in the ac- 
counts usually have exceeded the amounts currently 
allowed for tax purposes. [General Motors Corpora- 
tion] 



Explanation of a balance sheet 

The balance sheet of a corporation need not be a 
mystery. 

When vou want to know what you are worth in dol- 
lars and cents, you list everything you possess, plus 
what is due you from other people; then you also list 
your debts. The difference between what you have 
and what you owe others is your financial standing at 
that time. 

A corporation is a business which is made possible 
because a number of people have put their money 
into the enterprise. They are stockholders. The 
balance sheet of a corporation, while somewhat more 
complicated, is basically just a summary of what the 
business has and what it owes at a particular date. 

What a business has includes cash, and property 
which will shortly be turned into cash in the normal 
flow of business — these are called Current Assets. In 
addition there are assets of a more permanent nature 
such as buildings and machinery and equipment. 
For accounting purposes, the amount shown for these 
assets is generally based upon their original cost to the 
corporation. From the original cost is subtracted the 
estimated amount of cost used up in operations (de- 
preciation), leaving the amount of cost remaining to 
be absorbed in future operations. 

The difference between what a corporation has and 
what it owes represents the interest of the owners — 
stockholders. [The Murray Corporation of America] 



Changes in working capital 

Cash, S , and U. S. Government securities, 

S , were equivalent to — % of total current liabili- 
ties. No bank loans were outstanding at the close of 
the year. 

The ratio of current assets, $ , to current liabili- 
ties, S , was 3.7 to 1 at the close of the year, com- 
pared to 3.3 to 1 at its beginning. Net current assets 
— current assets minus current liabilities — increased 



$ during the year. Net current assets at the close 

of the year for each of the last five years follow: 

Net Current 
Assets 

19— $ 

19— 

19— 

19— 

19— 

Variations from year to year in the Company's 
working capital not only reflect retained earnings but, 
also, changes in the Company's Funded Debt. The 
substantial increase in working capital in 19 — was 
due largely to the placing of a six-year bank loan in 
that year. In 19 — a part of retained earnings was 
used to liquidate this loan. While the foregoing 
comparison shows a consistent and substantial in- 
crease in working capital, this increase was not as 
great percentage-wise as was the percent of increase in 
sales for the same period. In this period in which 
working capital increased sixty percent, sales in- 
creased eighty-five percent. In 19 — working capital 
at the close of the year was the equivalent of 20.1% 
of sales for the year. The comparable figure for 19 — 
was 17.3%. 

Of the eighteen million dollar increase in work- 
ing capital shown in the foregoing comparison, over 
eleven and a quarter million dollars was added to the 
Company's cash and government security accounts. 
The substantial increase in cash, during the period 
in which the ratio of total working capital to sales 
volume declined, resulted from unusual conditions 
growing out of the war effort. The inadequacy of 
merchandise supply in relation to consumer demand 
forced a faster than normal turnover of inventories. 
Large amounts of cash in the hands of consumers and 
government restrictions on credit-granting resulted 
in reductions in the normal ratio of accounts receiv- 
able investment to sales. The unavailability of many 
lines of merchandise usually purchased by the con- 
sumer on a deferred payment basis resulted in a sub- 
stantial reduction in the amount of deferred payment 
accounts. 

Many expenditures on physical plant were deferred 
during the war period due to unavailability of mate- 
rials and manpower and to government restrictions 
on construction activities. This resulted in an ac- 
cumulation of cash and, therefore, an increase in 
working capital. As normal times return it is ex- 
pected that delayed physical plant expenditures will 
be made, and that merchandise inventory and ac- 
counts receivable investments will increase. These 
requirements, together with the probability of fur- 
ther sales increases, will utilize fully all of the Com- 
pany's working capital and make advisable some 
additional financing. [Allied Stores Corporation] 

119 



REPORTING ON FINANCIAL CONDITION 



How an increase in sales affects need 
)or working capital 

When sales volume expands, lands are naturally 
required lor related increases in inventories, accounts 
receivable, plant, equipment and miscellaneous items. 
Expenditures on plant and equipment are necessary 
not only to expand output, but also to improve oper- 
ating efficiency and to maintain a strong competitive 
position for the company. Improvements in facili- 
ties aid employees in increasing their productivity 
and incidentally their earning power. Such financial 
needs were in mind when hinds were obtained 
through the offering ol additional shares to our stock- 
holders at the end of 19 — . On the basis of our ex- 
perience lor the 19 period, we have learned 

that for every $1.00 of additional sales volume, it is 
necessary to provide roughly $0.44 for increases in 
inventories, accounts receivable, plant, equipment 
and miscellaneous items. 

It is also important to consider the amount of in- 
vestment required to provide a job. For each job in 
our company, there is an average investment of ap- 
proximately .$ . This calculation includes the 

investment in trademarks, lormulae, and other in- 
tangibles, written off since 19 — in accordance with 
our policy prior to January 1, 19 — ol carrying in- 
tangibles at $1 in our balance sheet. The bulk of 
our investment in intangibles represents what we 
have paid prior owners of trademarks and businesses 
for building up the economic value of these in- 
tangibles through advertising, sales promotion and 
general enterprise. [American Home Products Cor- 
pora tion~\ 



The inventory situation 

The greater portion ol our product inventory is 
valued on the basis of market less selling expense or 
the lower of cost or market. The balance is valued 
on a cost basis of "last-in, first-out" (LIFO). Total 
quantities at year end are just slightly higher than at 
the close of the previous fiscal year. Although quan- 
tities of meats are lower, this is offset by larger quan- 
tities of other products. The increase in total prod- 
uct values over last year reflects, almost entirely, 
higher prices over a year ago. Rebuilding our meats 
stocks after the involuntary liquidations prior to Oc- 
tober 15 when controls were finally removed required 
large amounts of cash at the prevailing high prices. 
Additional large sums have been expended since the 
close of the fiscal year and will be expended during 
the current seasonal heavy livestock marketings when 
inventories are normally built up. Our policy dur- 
ing the past six years of conserving our resources and 
building up our working capital is now of inesti- 

120 



mable value in facilitating the maintenance of our 
volume of business at the current high level of prices. 

Considerable quantities of our basic LIFO inven- 
tories have been involuntarily liquidated. A reserve 
has been provided for the excess of replacement cost, 
at current prices, over basic LIFO costs of such in- 
voluntarily liquidated inventories and such reserve 
appears in the balance sheet, net of taxes, under cur- 
rent liabilities. 

Taking cognizance of the uncertainties inherent in 
present price levels, we have set aside a reserve of 

$ for inventory price declines on that portion of 

our inventories not valued on the LIFO basis. This 
amount appears as a reserve in our balance sheet. 

The $ has been deducted from our net earnings 

for the year as will be noted in our income statement 
and the balance of $ has been transferred to sur- 
plus. [Armour and Company'] 



Significance of inventory valuation on 
last-in first-out basis 

The metal content of inventories is stated at cost, 
determined in the last-in first-out basis, which is lower 
than at market prices. This method of determining 
the cost of metals in inventories, and in the cost of 
products sold, was adopted at January 1, 19 — with 
respect to silver and at January 1, 19 — as to other 
metals. The remainder of the inventories is stated 
at the lower of cost or market, on the first-in first-out 
basis. 

The last-in first-out basis follows the assumption 
that the most recently purchased materials are used 
first. With a relatively steady volume of inventories, 
the method tends to freeze the values at the price 
level of the date at which the method is adopted. 
This avoids the necessity of showing an increasing 
value for the same quantity of material in a period of 
rising prices, which must be absorbed as a loss when 
prices fall in later years. The adoption of this 
method in 19 — , as to metals other than silver, results 

in a decrease of approximately $ in profit for the 

year, as compared with the profit which would have 
been reported if determined on the basis used in 19 — 
— equivalent to $0.89 per Common Share which, 
added to the $7.28 reported for the year, would have 
totalled $8.17 per share. [Cleveland Graphite Bronze 
Company] 



Expansion 

The gauze requirements of your Company have 
made it a major factor in the textile industry, and in- 
creases in the sales of Kotex during the past few years 



REPORTING ON FINANCIAL CONDITION 



have made it difficult at times to secure sufficient 
gauze of the quality and construction needed. 

The desirability of owning a cotton textile mill to 
satisfy at least a portion of the gauze requirements 
had been apparent for some time, and several prop- 



eries were thoroughly investigated. 



It was recog- 



nized that if a suitable property could be found, it 
would be necessary to arrange for financing the pur- 
chase. 

Early in 19 — , it was decided to buy a mill property 
at Balfour, North Carolina. The mill had been pro- 
ducing 80 square print cloth and could be readih 
converted to Kotex gauze construction; it had no long 
term commitments for its output; it had good labor 
relations and a satisfactory labor supply. 

The transaction was completed on June 24, 19 — , 
at which time the purchase price of $2,800,000 was 
borrowed on short term loans from your Company's 
bankers. Your management felt at that time that the 
cash needed to retire the short term loans, as well as 
for the conversion of the new property to produce 
Kotex gauze and for other corporate purposes, could 
best be raised by the sale of common stock. 

In line with this program, the stockholders on July 
17, 19 — voted to increase the number of authorized 
shares of common stock from 600,000 to 1,500,000; to 
place a §2.00 par value on each of the new shares; and 
to eliminate the pre-emptive rights of stockholders to 
subscribe for any new shares that might be offered for 
sale. On the same day, the Board of Directors voted 
to issue two of the new shares for each one of the old 
shares then outstanding, thus making 300,000 shares 
available for sale. 

Preparations for the public offering of the common 
stock were almost completed when unfavorable condi- 
tions developed in the securities market, particularly 
with respect to new stock offerings. Under such con- 
ditions, your management did not regard it as being 
to the best interests of your Company to sell the new 
shares at a price which would net the Company less 
than what was believed to be their fair value. The 
plan was therefore temporarily abandoned. 

As an alternative measure, a seven year loan of 
three and a half million dollars was negotiated with 
your Company's bankers. In the judgment of your 
management, the terms of this loan are favorable to 
the Company. However, should future conditions 
warrant such action, the proposal to sell common 
stock can be reconsidered, and the loan can be paid 
before maturity. [International Cellucotton Prod- 
ucts Company] 



Goodwill 

There is an item on the asset side of the Balance 
Sheet carried at one dollar which warrants special at- 
tention. That item is Goodwill, a priceless posses- 
sion which cannot be valued in dollars and cents for 
many reasons. It involves the relations of the Corpo- 
ration to several different groups — people in whose 
hands rests, to a large degree, the reputation of Mur- 
ray and its products. 

Among the groups interested in Murray are its 
stockholders — the owners of the business who have 
invested cash in the enterprise. These people are the 
source of additional capital, needed to finance future 
expansion of the business. Stockholders are entitled 
to dividends — else why should they risk their money 
if there is to be no return upon the capital? 

Dollar value may be placed upon plants, machinery 
and equipment. What value is to be placed upon 
the essential "know-how" of the staff of Murray — the 
knowledge, technique and skill accumulated by the 
people in our plants through years of practical manu- 
facturing experience? It is the "know-how" which 
gives the plants and machinery earning power and 
therefore real value. Goodwill and loyalty of our 
employees, shown in the conscientious way they do 
their day's work, is a real factor in building Goodwill 
for our products. But how place a value on it? To 
these men and women — and those who served faith- 
fully before them in our shops — credit is due for the 
consistent quality of our products, which by perform- 
ance in the hands of users have built a good name for 
us with our customers. 

Murray by its relations through the years with 
its suppliers of material has established Goodwill. 
Without their help and cooperation in delivering ma- 
terials in a constant flow, Murray could not have 
maintained its production schedule — so essential to 
financial success in manufacturing operations. 

Finally Murray could not sell its products in large 
volume to the many big companies it has served year 
after year, unless Murray had earned the confidence 
these customers have in the stability of the Corpora- 
tion, the uniform quality of its products and the abil- 
ity of the Murray Organization to live up to promised 
delivery schedules — and at prices which meet com- 
petition. 

While these are not all, they are the principal fac- 
tors involved in the item of Goodwill carried at a 
dollar on the asset side of the Balance Sheet. [The 
Murray Corporation of America] 



121 



BALANCE SHEET AT A GLANCE 



■ 



ROAD AND EQUIPMENT 
AND OTHER PROPERTIES 

(after allowance for wear and use) 




$1, 003,7 30,724 



INVESTMENTS IN AFFILIATED 
AND OTHER COMPANIES 





$454,388,556 



CURRENT ASSETS 



$216,041,460 



All OTHER ASSETS 



%. 



WE OWN: $1,698,490,561 



;,,,,);; ' ;;.", ;V.i J.,!. 



;?ite:i; '.-: 






r ^.Ui 



'4 



BONDS 

(mortgage and debenture) 




$485,072,000 



EQUIPMENT OBLIGATIONS 



CURRENT LIABILITIES 



ALL OTHER LIABILITIES 

(including dot affiliated companies) 



CAPITAL STOCK 




SURPLUS 



$271,621,721 



WE OWE: $864,536,414 

AND SURPLUS 5>OJo,9d4,147 



Courtesy, New York Central Railroad Compa 



Fig. 76 



122 



ILLUSTRATED 
BALANCE SHEET 

(in thousands of dollars) 
December 31st 



7,509 



6,864 



5,619 



4,479 



58 



,027 



1945 



300 



660 



1946 



1945 



1946 



1945 



1946 



1945 



1946 




CASH, RECEIVABLES 

AND OTHER 

CURRENT ASSETS 




_ 1 — '-71 

m _~ ~D~~ 



l~i^(f -.■-■i- 




INVENTORIES 



FIXED 
ASSETS 



INTANGIBLE & 
OTHER ASSETS 



ASSETS 



7,500 



7,825 



NONE 



1,332 

■ 



1945 



1946 




CURRENT 
LIABILITIES 



4,174 



4,558 



NONE 



1945 



1946 




LONG TERM 
DEBT 



1945 



132 

1946 



550 590 




OTHER 
LIABILITIES 



LIABILITIES 



1945 



1946 




CAPITAL 
STOCK 



378 



NONE 



1945 



1946 



$ 



PAID-IN 
SURPLUS 



1945 



1946 




$ 



EARNED 
SURPLUS 



NET WORTH 



Fig. 77 



Courtesy, Suburban Propane Gas Corporation 
Graphic by Pick-S. N. Y. 



123 

















< 


6 
5 
4 
3 
2 
1 








o 
o 

D 












z 
2 

-J 

s 













1942 



1943 1944 194S 1946 



CURRENT ASSETS (BLACK) AND CURRENT 
LIABILITIES (WHITE) 

Courtesy, American Colortypc Company 

Fi g . 78 



WORKING CAPITAL AND LONG-TERM DEBT 
Millions of Dollars 



40 



35 



30 



25 



20 



15 



10 




Workin 



g Capital 




Funded Debt 



1941 42 43 44 45 46 

Courtesy, The Cudahy Packing Company 

Fi g . 79 




Courtesy, The American Rolling Mill Company 



Fig. 80 



124 



NET WORTH 

AND WORKING CAPITAL 


MILLION 
DOLLARS 

p 15 


NET WO"TH 
WOBK1NG CAPITAL 


~ 












14 
































12 






















* 
























10 
































r 
















8 






















































6 






























































4 






























































2 
































































1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



WORKING CAPITAL 



Courtesy, Houdaille-Hershey Corporation 

Fig. 81 




td CURRENT ASSETS AND PREPAID EXPENSES 

D CURRENT LIABILITIES □ WORKING CAPITAL 

Courtesy, S.gnode Steel Strapping Company 

Fig. 82 



WORKING CAPITAL 




in millions of dollars 
nt end of year 



CURRENT 

ASSETS. 



CURRENT 

"LIABILITIES 



WORKING 

CAPITAL 

RATIO 




INCLUDES ENGINEERING SPECIALTIES CORP. 1943, '44, '45, '46 

Courtesy, Ffeiffer Brewing Company 
Graphic by Pick-S , N. Y. 



Fig. 83 



125 



CURRENT ASSETS 



WAR YEARS 




nil III tl 



.» 



Kttt \S 'J4 » 3* "37 '» '» '-IO »V *2 *3 '44 4J '<* 

Courtesy, Sylvania Electric Products h 

Fig. 84 



CURRENT ASSETS 
Cash, Receivables, and Inventories 
Millions of Dollars 
40 




ReceivablesKi»»^^^»^P 

Courtesy, The Cudahy Packing Company 

Fig. 86 



,„,,.,.,,,,,, 



^MWfiM o£ 3htaJ. fjd&itefo 



02 YEAR PERIOD) 



16,000,000 
1 5,000,000 
14,000,000 
1 3,000,000 
1 2,000,000 
11,000,000 
10,000,000 
9,000,000 
8,000,000 : 
7,000,000 
6,000,000 
5,000,000 




i/>'Or^coo*0'i:^ s,<v >'^' lo<3 



YEARS S 5 



co o ro ro o T 



f ^ 7 <t 



O* O* O* O* C^ O* &■ O* O* <>" 



Courtesy, George Weston Limited 
Fig. 85 



eompaidionai FACTORY FLOOR SPACE 
* CHERRY-BURRELL PLANTS 




■ ■ ■ : . . ... 



126 



MILLION 
DOLLARS 



CHANGES IN CHARACTER OF ASSETS 

1937-1946 



30 



20 



10 



□ NET A S C S U E R T R S ENT W 



INVESTMENTS & 
OTHER ASSETS 



I PLANT 
I ASSETS 




1937 



1938 



1939 



1940 



1941 



1942 



1944 



1945 



1946 



IN°THOUSAN T DS $ 35 ' 1S9 $34,882 $35,655 $36,363 $36,400 $37,369 $37,709 $37,855 $37,589 $39,213 



Courtesy, Lehigh Portland Cement Company 



Fig. 88 



DISPOSITION OF CAPITAL FROM 1936-1946 




15 



10 



Permanent Investment 



14/ 
16.8 



21.3 
■ .<4,H 



6.3 

m 

0. 



8.2 



6.3 

mm 

11.8 






!'■»«'■ 




Fi g . 89 



Courtesy, Bridgeport Brass Company 



127 



TOTAL .1NVESTMEN' 

( "Beginning of Y#ttf ) 




ADDITIONS TO PLANT AND 
EQUIPMENT 



MILLIONS OF DOLLARS 
7 



939 1940 1941 1942 1943 1944 1945 1946 



Fig. 90 



Courtesy, General Analine & Film, Corporation 

Fig. 91 



MILLIONS 

OF 
DOLLARS 
320 



EXCESS OF CAPITAL EXPENDITURES OVER DEPRECIATION, 
DEPLETION, AMORTIZATION AND RETIREMENTS 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



Courtesy, Standard Oil Company (New Jersey) 



Fig. 92 



128 



PERCENTAGES TO ANNUAL SALES OF YEAR -END 
INVESTMENTS IN MERCHANDISE INVENTORIES, 
CURRENT ACCOUNTS RECEIVABLE 
AND DEFERRED PAYMENT ACCOUNTS RECEIVABLE 

1937 TO 1946 



1 ! 

17 














































U 


ERCHA 


ND1SE 


INVEN 


TORIES 








15 
14 
13 
12 






# . 







7 














.*" 














; 














• • •• 


•. 




; 
















' 


•. 


# " 


















\ 


/ 


10 

9 

e 

7 
8 






RENT 


ACCOU 


UTS R 


ECEIVA 
































V 
\ 




















\ 








/ 
/ 




AC 


EFERR 
COUNT 


ED PAY 
S REC 


MENT 
EIVABL 




, 


\ 






/ 

/ 






> 


— ■ 


i"— — 


f 














































2 








































































1937 1938 1939 1940 1941 1942 1943 1944 1945 I94S 



Courtesy, Allied Stores Corporation 

Fig. 93 















A'AR V 


EARS 








N ET WORTH 








■ 


Mill 


IONS OF DOLLARS 










































































1 1937 1 1938 1 1939 1 1940 1 1941 1 1942 1 1943 1 1944 1 1945 1 1944 



Courtesy, National Gypsum Company 

Fig. 94 



$ 

THOUSANDS 



1250 



Hf Expenditures for 
^Machinery S- Equipment 

H ^Depreciation 
i LlCharged Off 



1000 




1940 41 42 43 44 45 1946 



Courtesy, The United Electric Coal Companies 

Fig. 95 




1934 '35 *36 '37 '38 '39 '40 *41 '42 '43 '44 '45 '46 

Courtesy, Thompson Products, Inc. 



Fig. 96 



129 




Reducing Funded Debt 



•ETOF DEBT OUTSTANDING 



ON DECEMBER 31, mi 



111 Liua 



111 LLUUI 







$90 


in uum 
















"* 


11] L11HU 








mi nmi 
HI LUMU 








im nun 

"■! 









$78 



i Liuai in u 



LL1MJ JU u 



$72 



S WERE OUTSTANDING 




SOUTHERN PACIFIC TRANSPORTATION SYSTEM 
AND SEPARATELY OPERATED SOLELY 
CONTROLLED AFFILIATED COMPANIES 

FUNDED DEBT AND INTEREST CHARGES 



800 



Courtesy, P 



Fig. 97 



Marquette Railway Company 
Graphic by Pick-S, N. Y. 



400 



FUNDED DEBT OUTSTANDING 
DECEMBER 31 




40 



One Year's Interest on Funded Debt 
Outstanding December 31, 1946 



1921 1926 1931 1936 1941 1946 

Courtesy, Southern Pacific Company 
Fig. 98 



INTEREST CHARGES AND 

1500 



DEBT 




1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



FOR 1936 

$20,781,000 



D E B Tl 



Fig. 99 



FOR 1946 

$22,500,000 



Courtesy, Southern Natural Gas Company 



130 



DOLLARS 

MILLIONS 




500 



i 

o 

00 

00 

M 



I 
400-2 

to 



HOW GENERAL MORTGAGE WAS CHANGED 
FROM A THIRD LIEN TO A FIRST LIEN 



LONG TERM DEBT REDUCED $111,917,239*32.0%, 1935 TO 1946 



:°a 



5/ 



£*l'r A 



l J*4 



2°* 



CAPITAL STOCK 

STATED VALUE 



1944 REFINANCING 

CALLED PRIOR LIEN AND FIRST & 

REFUND. MTG. BONDS MAKING 

GEN'L MTG. A FIRST LIEN 




X 



65 

00 
CO 



o 

in 
oo s 

CO 

CN 
CN 



Fig. 100 



Courtesy, Great Northern Railzvay Company 



131 



Price movement of the common stock from its first 
listing on the New York Stock Exchange in 1929 
to the close of 1946 is indicated by the black line 
on chart at right. Prices are those of the last trad- 
ing day in March of each year. White line on 
chart shows the comparative price for one 1929 
share, taking into consideration the stock dividend 
of 33V 3 % in 1935, a 3-for-1 split in 1936, 5% 
stock dividend and rights voted in 1939, rights in 
1944, and a 2-for-1 stock split and rights which 
were authorized in 1946. 

Photo courtesy FINANCE magazine 




Courtesy, Abbott Laboratories 



Fig. 101 



132 



kkJ 




Growth in Book Value per share of Common Stock 

3 YEAR INTERVALS 1934* 1946 



15.00 
14.00 

13.00 

12.00 

11.00 

10.00 

9.00 

8.00 

7.00 

6.00 

5.00 

4.00 

3.00 

2.00 

1.00 







1934 1937 1940 1943 1946 



Courtesy, Hydraulic Press Manufacturing Company 

Fig. 102 



TOTAL COMMON STOCK EQUITY 

AND 

BOOK VALUE OF COMMON STOCK 



TOTAL COMMON STOCK EQUITY 
(IN MILLIONS OF DOLLARS) 



BOOK VALUE OF COMMON STOCK 
ON DOLLARS PER SHARE) 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



Courtesy, Allied Stores Corporation 



Fig. 103 




Courtesy, Erie Railroad Company 



Fig. 104 



133 



CHAPTER 10 



REPORTING ON EMPLOYMENT, 
WAGES AND EMPLOYEE RELATIONS 



The utmost care should be given to the treatment 
of employment, wages and employee relations in 
the annual report. The company's employees are 
its most important witness of the benefits of pri- 
vate enterprise. The report should give facts and 
explanations that help the reader to see the em- 
ployees, managers and stockholders as a team, each 
making a necessary contribution, with no one 
group profiting at the expense of the other. 

CHECKLIST FOR COMMENTARY 
ON EMPLOYMENT, WAGES AND 
EMPLOYEE RELATIONS 

Basic employee-relations policies. 
Comments on what charts included in the 

report show. 
Growth of the company: 

Number of employees at beginning 
and end of the year. 
Growth in nunrber of employees 
over a period of years. 
Stockholders' investment per em- 
ployee. 
Labor problems: 

Unions with which collective-bar- 
s;ainino- agreements are in effect. 
Company's position in negotiations 
with union. 

Labor contracts in existence. 
Labor difficulties: 
(i) Where shutdowns occurred. 
(ii) How long they lasted. 

Causes of the shutdowns. 
Result of interruptions in 
operations (losses to em- 
ployees and the company). 
Settlement of differences. 
What increase in wages will 
cost the company, 
conrpany met manpower 
shortage. 

How company met lay-off problem. 
Guaranteed employment. 
134 



(a) 
(b) 
(c) 

iboi 

(a) 

(b) 

(c) 
(d) 



(iii) 

(iv) 



(v) 
(vi) 



(e) How 



(f) 
(g) 



(b) 
(C) 

(d) 

(e) 
(f) 

(g) 



(h) Benefits of steady work. 
(i) Hours of labor. 

(j) Attitude of management toward la- 
bor. 

Salaries and wages: 

(a) Trend of total wage payments over 
a period of time. 

Average hourly earnings compared 
with earlier periods. 
Average hourly earnings over a pe- 
riod of time compared with the 
Cost of Living Index of the Bureau 
of Labor Statistics over the same 
period. 

Any increase in efficiency to offset 
higher wages. 
Any decrease in efficiency. 
Extra compensation paid during 
the year. 

Proportion of labor cost to finished 
product. (See distribution of sales 
dollar, page 71.) 

Compensation of management: 

(a) Salaries paid top management. 

(b) Compensation under bonus plans. 

(i) Outline of plan. 
(ii) Payments made under the 

plan. 
Importance of management. 
Incentive compensation of bonus plans: 

(a) How long in effect. 

(b) What bonuses are granted. 
Who benefited during the year. 
What amount was distributed. 
Percentage reduction in year's earn- 
ings due to distribution. 

Key employees: 

(a) Biographical sketches. 

(b) Duties. 
Training: 

(a) Who receives training. 

(b) Type of training. 

(c) How many in training. 



(c) 



(c) 
(d) 

(e) 






^ 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



(d) Educational opportunities. 

(e) Promotion policy. 
Suggestion plan: 

(a) When established. 

(b) How many employees received 
awards during year. 

(c) Amount expended in awards dur- 
ing year. 

(d) Cumulative figures since beginning 
of plan. 

Vacations: 

(a) Who receive vacations (factory and 
office employees). 

(b) On what basis are vacations with 
pay given? 

(c) Number who received paid vaca- 
tions. 

(d) Compensation paid while on vaca- 
tions. 

Safety: 

(a) Company's efforts to increase safety. 

(b) Number of days lost per million 
man-hours worked. 

(c) Number of disabling injuries per 
million man-hours worked. 

(d) Safety contests and awards. 

(e) Results of campaigns. 
Years of service: 

(a) What anniversaries are recognized? 

(b) Awards made. 
Pension, profit-sharing, or stockownership 

plans: 

(a) If new, essentials of plan. 

(b) When established. 

(c) Company's expenditure. 

(d) Employees' contributions. 

(e) Number pensioned during year. 

(f) Amount of pensions paid during 
year. 

(g) Other benefits paid under the plan. 
(h) Expenditure under Federal Social 

Security. 
Thrift plans — credit unions: 
(a.) When established. 

(b) Essentials of the plan. 

(c) Company's contributions. 

(d) Trustee. 

(e) Number of employees partici- 6. 
paring. 

(i) Success of plans. 
Group life insurance: 

fa) If new, essentials of plan. 



(b) Cost to company. 

(c) Amount of coverage of policies held 
at end of year. 

(d) Amount of benefits paid since plan 
was established. 

Group hospitalization: 

(a) If new, essentials of plan. 

(b) Cost to company. 
Recreational facilities: 

(a) When established. 

(b) What it consists of. 

(c) Use being made of facilities. 

(d) Changes. 

(e) Number of people using facilities 
and attending events. 

Personnel department: 

(a) Employment procedures. 

(b) Accomplishments. 
Employee publications: 

(a) Pamphlet about company. 

(b) House organ (circulation, nature). 

(c) Annual report to employees. 
Special services: 

(a) Medical and health. 

(b) Restaurant. 

(c) Legal. 

(d) Home-ownership plans. 

(e) As to each service: 
(i) When established. 

(ii) " What it consists of. 
(iii) Use made of services of- 
fered. 
(iv) Company expenditure. 

IDEAS FOR 

CHARTS AND GRAPHS 

1. Number of employees at end of a period of 
years. 

(a) Breakdown into men and women. 
Total payroll over a period of years. 
Average earnings (per hour, week, or year) 
per employee over a period of years. 
Average hours per week worked per em- 
ployee as compared with previous years. 
Productive man-hours worked in manufac- 
turing plants in specific years, in relation to 
years selected to represent 100%. 
Comparison of trend of wages with: 

(a) Salaries paid management. 

(b) Sales. 

(c) Cost of living. 

(d) Prices of company's products. 

135 



9 
3. 

4. 

5. 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



(e) Company earnings. 

(f) Dividends. 

(g) Revenue per ton-mile. 

(h) Revenue per passenger-mile. 
(i) Wages in industry generally, 
(j) Taxes. 

(k) Investment in tools furnished by share- 
holders. 
(1) Production, 
(m) Total operating expenses. 
6a. Percentage of change in wage rates in manu- 
facturing, by industry group, between two 
specific dates. 

7. Capital invested per employee over a period 
of years. 

8. Length of service of present employees. 

0. Payroll cost per pound of product produced. 

10. Pounds produced per payroll dollar over a 
period of years. 

11. Accident records (number per 1 ,()()(),()()() 
hours work; number of days lost per 1000 
hours worked; compared with previous pe- 
riod). 

12. Steps in development of company's indus- 
trial-relations program. 

13. Employee benefits paid over a period of 
years. 

14. Company's contributions to employee bene- 
fits. 

13. Effect of Federal Income Tax on employee 
compensation at each $10,000 stage. 

See pages 145 et seq. for examples of charts on 
the subject of this chapter. For other charts in 
which employment factors are graphically treated, 
see page 7 1 . 



IDEAS FOR STATISTICAL 
DATA ON EMPLOYMENT 

Tables of figures relating to employment and em- 
ployee relations are generally of two classes: (1) 
Those referring to number of employees and earn- 
ings, (2) those dealing with employee benefit 
plans. A number of examples of tabular matter 
dealing with employment are given below. 



19— 



19— 



Wages and Salaries: 

Total 

Percentage of sales 

Average number of employees 

136 



% 



% 



The following table shows the number of hourly workers em- 
ployed by the Corporation in the United States and wage 
payments to those employees: 



Average number of hourly rate 
employees in the United 
States only 

Wages paid to hourly rate em- 
ployees in the United States 
only 



19— 



19- 



Increase 



751 Employees of Corporation 

Are engaged in the supervision of 
operations through six Depart- 
ments 

Are engaged in operating and main- 
taining the plant facilities 

Are engaged in completing tele- 
phone calls 

Are engaged in subscriber service 
and collections 

Are engaged in billing, accounting, 
statistical and other clerical func- 
tions 

Total 



Decembe 


31, 19— 


Number 


Percentage 


50 


6.66 


273 


36.35 


239 


31.82 


51 


6.79 


138 


18.38 


751 


100.00 



The following tabulation shows the trend of the straight-time 
hourly earned rates of — factory employees during the past 
few years, expressed in percentage terms and taking 19 — as 
a base year. 

Hourly Wage 

Employees 

Straight-Time 

Hourly Earnings 

as % of 1 9— 

19— 100.00% 

19— (9 months) 

19— 

19— 

19— 

19— 

19— 

19— 



LENGTH OF SERVICE OF OUR EMPLOYEES 

— % 5 Years and Over 

— % 3 But Less Than 5 Years 

— % 2 But Less Than 3 Years 

— % 1 But Less Than 2 Years 

— % Under 1 Year 

100.0% 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



EMPLOYED IN 




NUMBER OF EMPLOYEES 


TOTAL WAGES AND SALARIES 


Total 


End of Year 


Averase for Year 




Increase 


19— 


19— 


% 
Increase 19 — 


19— 


% 
Increase 


19— 


19— 































EMPLOYEES AND WAGES 
(United States only) 




Average Monthly 

Number of 

Employees 

Receiving Pay 


Average 

Number of 

Hours Worked 

per Week 


Total Payroll 


Average Earnings 
per Hour 


y ear -|9_ 
















y ear 1 9 — 

















19- 


-19 NUMBER OF EMPLOYEES, 


PAYROLL, HOURS AND EARNINGS 




Year of 


Number of Total 


Weekly Hourly 


Weekly 


Operation 


Employees Payroll 


Hours Earnings 


Earnings 



COMPARISON OF STEEL PLANT WORKERS' EARNINGS WITH COST OF LIVING BY YEARS 



Average 
Number of 
Employees 



Average 

Yearly 

Earnings 



Average Hourly 
Earnings 



Amount 



Straight Time Average 
Hourly Rate 



% Increase 

Since 19 — Amount 



% Increase 
Since 19— 



Cost of Living 
19 = 100 



Index 



% Increase 
Since 19— 



Comparison of Weekly Earnings in Production and Distribution of Gas by Regions With Seattle Gas Company and With 

Twenty-Seven Manufacturing Industries in United States 

Average Weekly 
Region Earnings* 

United States (a) $48.1 1 

East i 



(a) 



46.65 



South (a) 46.26 

Middle West (a) 47.67 

Far West I 



(a) 



53.29 



Average for 27 Manufacturing Industries in United States (b) 55.82 

Seattle Gas Company (c) 57.38 

(a) Weekly earnings of employees in Production and Distribution Departments ol gas companies, June 1945, by regions, as reported in National Industrial Con- 
ference Board "Management Record" for October, 1945. 

(b) Weekly earnings of male employees in 27 manufacturing industries in United States, June, 1945, as reported in National Industrial Conference Board "Man- 
agement Record" for August, 1945. 

(c) Weekly earnings of Seattle Gas Company employees in Production and Distribution Department, June, 1945. 
* Weekly earnings in all eases include overtime pay. 



137 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



Number of Individuals Receiving Salaries of $10,000 or More Per Annum 
The following tabulation shows the number of executives in various salary groups receiving salaries at the rate of $10,000 or 
more per annum as of December 31, 19 — , whether or not included in the executive management group: 

Number of Individuals 
Amount of Salary as of December 31, 19 — 

$1 0,000 to $20,000 

etc. 



Total 



EXECUTIVE MANAGEMENT COMPENSATION 



19— 



19— 



Number of Executives Included 

Per Dollar of Profits Earned for Stockholders 

Executive management salaries 

Supplemental compensation under bonus plan 

Total 

Per Share of Common Stock 

Executive management salaries 

Supplemental compensation under bonus plan 

Total 

(Earnings per share of common stock in 19 — were $- 

Per Dollar of Total Volume of Business 

Executive management salaries 

Supplemental compensation under bonus plan 

Total 

Per $100 of Retail Price of Products Sold 

Executive management salaries 

Supplemental compensation under bonus plan 

Total 

Per Dollar of Total Payroll 

Executive management salaries 

Supplemental compensation under bonus plan 

Total 



19- 



$ 



$ 



, in 19— $ , and in 19— $- 

$ $ 



$ 



EMPLOYEE RELATIONS 

The Company's program of industrial relations is summarized as follows: 

Relief Fund — For disability not covered by Workmen's Compensation 

Number of employees who received benefits in 1 9 — 

Amount paid in 1 9 — for Relief Benefits $ 

Group Insurance — Number of employees insured 

Amount of insurance $ 

Amount of death and disability payments paid beneficiaries since inception of plan in 19 — $ 

Savings Fund — Number of employee depositors 

g Amount of deposits $ 

Average amount per depositor $ 

The Company guarantees the return of principal and interest to employee depositors, and carries 
reserves therefor. 

Annuity Trust — Employees on retirement roll at December 31 , 1 9 — 

Payments made in 1 9 — to retired employees $ 

138 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



The total expenditures by the company in 19 — under employee benefit plans, together with additional amounts payable by 
the company for social security taxes and other statutory payments, are as follows: 

Expenditures Under Amount 

Company Plans (disability benefits, life insurance, pensions, vacations, etc.) $ 

Federal and State Statutes: 

Social Security Act (unemployment insurance and old age benefits) $ 

Workmen's Compensation Laws (occupational disability benefits) 

Total $ 



TRUSTEE'S REPORT OF PENSION TRUST FUND ESTABLISHED BY COMPANY 

Balance in Fund — December 31 , 1 9 — $ 

Additions to Fund During 19 — 

Payment into fund by company $ 

Interest revenue, including gain or loss on investments disposed of 

Total Additions $ 

Disbursements for Pensions During 1 9 — 

Net Increase in Fund 

Balance in Fund — December 31 , 1 9 — $ 

Comprised of — 

4% Demand note of company $ 

Bonds of companies 

U. S. Government obligations 

Public utility, railroad and industrial bonds 

Cash and accrued interest not due 

Total $ 

Note: Securities are shown on amortized basis. 

Trust Company, Trustee 

By 

Trust Officer. 



Year 


Relief Dept. 
Benefits Paid 
During Year 


FIFTEEN YEAR RECORD 

f^poi IP IKKIIRAMTP 


SAVINGS 

Balance 
End of Year 


PI I Kin 


Annuity 
Benefits Paid 
During Year 


Amount of Total Benefits Number 

Insurance Paid People 

End of Year During Year Insured 


Interest 

Paid 

During Year 



Employees' Pension and Benefit Plan 

During the year 19 — , pensions and benefits were paid in 

cases under the Plan for Employees' Pensions, Disability Bene- 
fits and Death Benefits, amounting to $ divided as follows: 

No. of 
Cases Amount 

Service Pensions $ 

Disability Pensions 

Accident Benefits (including expenses) 

Sickness Benefits 

Death Benefits 



Since the adoption of the Bonus Plan by the stockholders 
in 19 — , a bonus fund has been distributed out of net earnings 
for seven fiscal years as follows: 



Number of 
Individuals 



Amount 





Tons Mined Per 


Tons Mined 


Year 


Compensable Accident 


Per Fatality 


19— 






19— 






19— 






19— 






19— 







139 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



EXCERPTS FROM COMMENTS 
ON EMPLOYMENT, WAGES AND 
EMPLOYEE RELATIONS 

The excerpts given below have been selected be- 
cause they attempt to make the reader understand 
the philosophy of private enterprise. The ex- 
cerpts also meet the tests of clarity, good tone and 
telling something beyond what is evident from the 
financial statements. Some of the quotations 
have been taken out of their texts; they are not 
complete treatments of the subject. Other illus- 
trations from reports to employees are given in 
Chapter 18. 



The importance of private enterprise 

Owners of the company, the stockholders, are inter- 
ested in the prospects for future dividends on their 
money invested in Murray. That money makes jobs. 
Incidentally, that money is equivalent to approxi- 
mately $4,100 for each employee, and is represented 
by plants, equipment and working capital, which 
would not be productive without the driving power 
of people who have the know-how. 

Employees, hourly and salaried, invest their time 
and energy and receive pay envelopes for their efforts. 
The employee is concerned with the future of his job, 
which is his livelihood. Those in positions of super- 
vision and management are trustees, representing the 
employees and the stockholders. These three groups 
have identical interests in the prosperity and the suc- 
cess of the Company — an unbeatable team, when each 
does its part and plays the game, giving the best it 
has to the job. [Murray Corporation of America] 



Why a sound basis for wage payments is essential 

A sound basis for wage payment is essential to the 
welfare of everyone. Regardless of whether a person 
be an employee or stockholder owner in any indi- 
vidual situation, he is always a customer of many 
others who supply him with products for his business 
and his personal living. As a customer he wants fair 
prices for what he buys; as an employee he wants the 
fair value of his services with due regard to the ap- 
plicable cost of living; and as a stockholder he wants 
a fair return on his investment. 

Unless all concerned receive reasonable benefits 
from the operation, all are eventually adversely af- 
fected. No one of the three groups can long benefit 
at the expense of the others. If wages or profits of 
owners are so high as to produce a selling price for 
the product unattractive to potential customers, they 

140 



will not buy; and when that happens, employment 
and profits decline to the detriment of both em- 
ployees and stockholders. Prices which stimulate 
increased demand create higher employment and 
greater opportunity for employees in the expanded 
operation. 

But selling prices over a period must contain a 
profit which is sufficiently attractive to encourage 
business owners to supply the necessary capital for 
expansion; otherwise there is not inducement to in- 
vest or expand. 

II wages are too low, then employees leave their 
employment for better jobs, which results either in 
reduced operations or employment of less skilled peo- 
ple, neither of which benefits the employer. [Cater- 
pillar Tractor Co.] 



Management's aim with regard to its employees 

Democracy Demonstrated 

Democracy at its best is demonstrated in our rela- 
tions with our employees. I firmly believe that every 
man and woman working for Brown & Bigelow has 
the opportunity to grow and expand his or her ca- 
pacity in proportion to his or her ability. There is 
room at the top for any individual who has the ability 
and desires to get there. 

I believe that the Brown & Bigelow employees, 
numbering over 3400 in the factory and Home Office 
alone, appreciate the fact that they are not "lost in 
the shuffle." I know that they work hard for ad- 
vancement, and I am glad indeed that so many were 
advanced during 19 — . 

It is probably because I started in this business as a 
bench worker in the factory, that I am so happy to 
see the spirit of cooperation which exists within our 
organization. When I see the respect paid our vet- 
eran craftsmen by our customers and sales organiza- 
tion, I am proud that democracy is in action at Brown 
& Bigelow. 

During the year, high wage standards prevailed; 
vacations with pay for eligible employees were given, 
and every employee participated in the bonus dis- 
tribution which totalled well over .$1,000,000 for the 
year. These bonuses expressed to the men and 
women who received them, a little of Management's 
attitude to the employees who keep the wheels turn- 
ing.* * * 

Part of our feeling toward our fellow-workers is ex- 
pressed by the various types of group life, medical 
and hospitalization insurance which is available for 
the protection of our employees both in the plant and 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



in the field. This insurance is eagerly accepted and 
very widely held. 

The health of every man and woman working in 
Brown 8c Bigelow is of prime importance to Manage- 
ment. We have a complete, modernly equipped first 
aid and hospital room, staffed night and day by 
eleven registered nurses. Their professional care has 
already cut to a minimum lost working time due to 
illness. 

A completely equipped physio-therapy department 
ministers to the health of employees. Here, courses 
of corrective exercises have improved the health of 
many employees, and much is done to relieve fatigue, 
nervousness and tension that result from these too- 
crowded work clays. 

Our Safety Education program, pointed up this 
year, has cut down our accident rate. This improve- 
ment is recognized by our receipt of the Minnesota 
State Safety award. 

Our Cafeteria has increased its efficiency and now 
serves about 2,000 meals a day. 

These are some of the things that come under the 
heading "Employee Relations." But more impor- 
tant I believe, is the attitude among all of us in the 
plant. 

I am delighted when a man pays off the mortgage 
on his home. I am pleased when a youngster starts 
college. I am eager to have every Brown & Bigelow 
employee, and the family of every employee, get more 
of the good things of life. 

That has always been my aim, since I first became 
associated with the company so many years ago. It 
will continue to be my aim — because I believe those 
Avho contribute their brains, muscle and heart to this 
business should be the first to profit from it. [Broum 
if Bigelow] 



"Ability to pay" as a basis for determining wages 

We believe this [ability to pay] to be a thoroughly 
unsound factor in determining a company's wage 
level. It would mean that a prosperous company 
would pay higher wages for a given kind of work than 
would a less prosperous company. It would mean 
that wages, which have steadily risen in this country, 
would be adjusted to profits, which have sharp fluc- 
tuations, and this would obviously be harmful to the 
American worker. It would mean, finally, that with 
a Government agency determining a company's abil- 
ity to pay, the basic authority of management, essen- 
tial for free enterprise, would be destroyed. 

The Company has, therefore, consistently declined 
to discuss "ability to pay" or to admit its validity in 
connection with the determination of wages. The 
following excerpt from the Company's letter of Jan- 
uary 21st to the Secretary of Labor acknowledging 



receipt of the Panel report, explains our position: 

"The Panel has dealt at length with the question of 
'ability to pay.' On this point the management of 
this Company has not altered the position expressed 
in our telegram to the Chairman of the Panel on De- 
cember 21st, namely: that 'ability to pay' is not a 
proper criterion of the fairness of a company's wage- 
levels and that the maintenance of a tie between 
wages and earnings 'would cause wages to fluctuate 
up and down in the extreme and unpredictable man- 
ner characteristic of earnings' and 'would lead in- 
evitably and rapidly to a rigid government control of 
industry.' 

"For example, in determining 'ability to pay,' the 
first question which the Government agency will have 
to ask is: What is a proper profit for a company to 
make? Then, if wages are based upon this profit, the 
Government presumably will be under a responsibil- 
ity to see that the profit is realized, by controlling the 
prices charged to the public. Thus the free enter- 
prises of America would ultimately operate with a 
fixed rate of return and fixed charges to the public. 
There would be little incentive for one company to 
do better than another, or for any one to undertake 
new ventures which almost invariably involve great 
risk. It is hardly necessary to point to the conse- 
quences which this would have in retarding America's 
industrial progress and lowering its standard of liv- 
ing." 

Working conditions in the oil industry have set an 
unusually high standard, and the relationship be- 
tween management and employees has been excep- 
tionally good. It is significant that in its report, the 
Oil Fact Finding Panel stated: 

"The petroleum industry is admittedly a high wage 
industry. The average gross hourly earnings of all 
manufacturing industry in July, 1945, was 103.3 cents 
per hour. As of the same date, the average gross 
hourly earnings of the petroleum industry was 128.1 
cents per hour." 

We look forward to a continuance of this high wage 
standard, and are confident that, with sincerity and 
good will on both sides, management and employees 
in this industry can work out their problems success- 
fully by free collective bargaining. [Socony-Vacuum 
Oil Co.] 



Policy in negotiating with anions 

All agreements with unions during 19 — ■ involving 
wages, hours of work, and other conditions of em- 
ployment were reached through collective bargaining. 
In negotiating these agreements and in all its dealings 
with employees, the management followed its long 
established policy embodying five major objectives: 

141 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



1. To compensate employees adequately. 

2. To provide continuous employment. 

3. To establish good working conditions. 

4. To place employees in positions best suited to 
their abilities and encourage them to advance. 

5. To maintain relations in a spirit of friendliness 
and cooperation. 

Operating problems were solved constructively 
through labor-management meetings inaugurated sev- 
eral years ago. Throughout the year these meetings 
again demonstrated their value as a means of pro- 
viding the organization with a clear understanding 
ol the interdependence ol the three elements of Amer- 
ican industry — stockholders, employees and custom- 
ers. [The Ruberoid Company] 



Union Representation 

In all of the fifteen operating plants of the Com- 
pany in the United States, employees are now repre- 
sented by unions. Bargaining rights are exercised by 
twenty-one different local unions, of which fifteen are 
affiliated with the American Federation of Labor and 
six with the Congress of Industrial Organizations. 

Maintenance of membership in a union was a con- 
dition of employment for all union member em- 
ployees in three plants at the beginning of 19 — , con- 
tinuing from the war period, when the War Labor 
Board considered this type of union security to be 
expedient. Your Company, however, regarded this 
provision as a restriction on a man's freedom to work, 
and insisted on eliminating it when negotiations were 
opened for new contracts at the three plants in ques- 
tion. Strikes of several months' duration resulted at 
two of these factories, Beaver Falls, Pennsylvania, and 
Pittsburgh, Pennsylvania, but when agreements were 
finally signed, maintenance of union membership was 
not included. [Armstrong Cork Company'] 

Wages and Salaries 

It is the opinion of the Directors of this Company 
that general increases in wages and salaries must be 
based upon the ability of industry to absorb such in- 
creased labor costs without raising prices or jeopard- 
izing the interests of investors. Such increases should 
represent the employees' fair share of cost savings 
effected through greater productive efficiency. The 
public and owners of the enterprise should also bene- 
fit from such improvements in production by means 
of reduction in selling prices and reasonable increases 
in dividends. 

The practice since the war has been to grant salary 
and wage increases entirely out of proportion to in- 
dustry's capacity to absorb them. The inevitable re- 
sult, as exemplified by recent developments, has been 

142 



increased prices. This price spiral has aggravated 
the inflation that is causing so much hardship, par- 
ticularly to those with fixed incomes, and that is 
making the future of industry and employment most 
uncertain. 

Despite the belief that the current trend is basically 
unsound, the company will adhere to its policy of set- 
ting wages and salaries equal to those paid by com- 
parable companies in this area. It is, therefore, our 
plan to notify employees on June I of the changes 
that will be made in the maximum and minimum 
rates for various employment classifications. An in- 
terim period is required in order that we can learn 
how generally and to what extent metal fabricators of 
about the size of our company will follow the pattern 
that has been set up by steel mills and several other 
industries. In our type of industry the relation of 
wages to the value of the product is high and in- 
creases in wages and salaries paid consequently have 
an important effect on costs and profits. 

Regardless of possible adjustments in the wage 
scale, the company is constantly analyzing the opera- 
tions of the Signode Profit Sharing Plan in order to 
make certain the employees participate in the com- 
pany's earnings to an extent that makes them partners 
with the shareholders. With this objective in mind, 
the Directors of the Company recently authorized re- 
vision of the formula used in computing the company 
contribution to the Trust Fund. Under this provi- 
sion, which is subject to approval by the Commis- 
sioner of Internal Revenue, the Company will pay 
20%, instead of the present 15i/2%, of its profits after 
Federal Income taxes, preferred stock dividend re- 
quirements and 25^ per share on common stock. 
[Signode Steel Strapping Company] 



Executive Compensation 

One of the major problems of colorations today is 
to attract and hold men of outstanding managerial 
ability, and to provide them with incentive to greater 
effort and assumption of larger responsibilities. Fi- 
nancial reward alone is not the complete incentive. 
Love of work, pride in accompiishment, and the asso- 
ciations with others are also important incentives to 
individual progress. However, while not the sole 
factor involved, in most cases financial reward must 
be, of necessity, the greatest single attraction and in- 
centive. Higher position creates heavier financial 
burdens for the incumbent. 

The difficulty of solving this problem has been seri- 
ously magnified in recent years by the progressively 
mounting rate of income tax on increases in compen- 
sation. In order to reward an employe fairly and 
adequately for the assumption of increased responsi- 
bility, his nominal or gross compensation must be 
increased by a far greater amount than was previously 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



considered appropriate, to enable him to defray an 
important part of his greatly increased taxes as well 
as his other enlarged expenses. Without such treat- 
ment the incentive to advancement to more impor- 
tant position is materially lacking. 

The chart following [see page 148] shows in graphic 
form, the rapidly widening discrepancy between nom- 
inal or gross compensation and net benefit. For ex- 
ample, under the assumptions noted on the chart, an 
employe receiving SI 0,000 gross compensation re- 
tains 88,300 after personal income taxes, whereas the 
employe receiving 550,000 gross compensation, five 
times as much, retains about 526,200. or only three 
times as much. In order to increase by $10,000 the 
net compensation of an employe who is now receiving 
526,200. to compensate him adequately for the in- 
creased responsibility resulting from an important 
promotion, it would be necessary to increase his nomi- 
nal, or gross, compensation from 550,000 to 590,000 
per year — an increase of 540,000, or four times the 
additional net compensation derived by him. . . . 
[E. I. Du Pont de Nemours £r Co.] 



Plant shut-downs 

The Company's steel division plant, located at 
-, was completely closed down for 52 days, 45 



of which were due to the industry-wide steel strike 
and 7 of which were occasioned by an unauthorized 
"wildcat" strike. These work stoppages occurred 
during January, February and March, almost com- 
pletely paralyzing first quarter operations. 

The Company's wire and cable plant, located at 

, , was down for 30 days during 1946, all of 

which were occasioned by power company strikes oc- 
curring in February, September and October. 

Partial shut-downs occurred in the wire and cable 
division in February due to gas shortage, and in May, 
over an eight-day period, due to railroad embargo 
occasioned by the coal strike. Similar partial shut- 
downs occurred in the steel division covering four 
weeks (two weeks in each June and July) due to in- 
ability to procure scrap, which is the main raw mate- 
rial used in this plant. 

Thus, over the entire twelve-month period the 
Company had only four months of uninterrupted 
operations. 

Losses in wages to our employees by reason of the 
work stoppages listed, plus other, less important stop- 
pages, aggregated approximately $1,000,000. No at- 
tempt is made to estimate the overall loss to the Com- 
pany in profits, but the amount is large — much larger 
than would be indicated by taking into consideration 
only the number of days the plants were shut down. 
This is because of the obvious fact that without con- 
tinuity of operations, satisfactory results cannot be 



obtained. No manufacturing plant — certainly none 
engaged in the production of durable goods — can 
produce satisfactorily when operations are being in- 
terrupted frequently and unpredictably. [Copper- 
weld Steel Company] 



Selection of employees for junior staff positions 

A word about personnel. One of the most difficult 
tasks facing all management is to find competent peo- 
ple to carry on the important phases of the business. 
We enjoy the finest of employee relations: we have 
had no labor trouble whatever. We have pursued a 
liberal policy, not only in wages but in other social 
benefits, which makes for loyal and efficient workers. 
One reason we have succeeded in maintaining the 
morale of our personnel has been the unusual char- 
acter of our plant managers and their associates. To 
back them up, therefore, and to be certain of com- 
petent, well-trained men for the future management 
of the business, we have paid and shall continue to 
pay particular attention to the selection of young men 
for junior staff positions. We have a rather young 
general staff and, in my opinion, that augurs well for 
the future. [Bristol-Myers Company] 



Keeping employees informed of company 
problems and policies 

The Company has continued its monthly magazine 
"GETnews" as a method of disseminating informa- 
tion to its employees. This also serves as a medium 
for acquainting personnel throughout the Company 
with each other, and with activities over the property. 

An information program has been instituted as a 
means of informing employees of the problems facing 
the Company and of company policies, as well as a 
method of better training them to properly contact 
the public and perform their specific jobs. This has 
taken the form of a series of lectures, and of tours 
over the principal plants and installations of the 
Company. [South Carolina Electric & Gas Company] 

Vacations 
Thirteen thousand three hundred and nine • 



employees received paid vacations in 19 — . Salaries 
and wages paid to employees while on vacation 
amounted to nearly one million dollars. Our vaca- 
tion plan provides that all our workers with one or 
more years' continuous service receive paid vacations 
of one, two, or three weeks as determined by the num- 
ber of years they have been with the Company. 
[CudaJiy Packing Company] 

143 



REPORTING ON EMPLOYMENT, WAGES AND EMPLOYEE RELATIONS 



An introduction to Employee Benefits section 

One of the reasons why youi company has so many 
long-lime employees, ranging in service from five up 
to forty and more years, is that people find Goodyear 
a friendly place in which to work. This has long 
been a primary aim of management and is imple- 
mented by numerous company-sponsored and assisted 
programs designed to promote the happiness and wel- 
fare of Goodyear folks at all times. These include: 
. . . [Goodyear Tire & Rubber Company] 



Why Employee Benefits tire offered 

These benefits, together with regular employment, 
promote a sense of security and encourage the em- 
ployees in their civic, social, and economic develop- 
ment. Thus, they become better citizens of their 
communities and gain more satisfaction and enjoy- 
ment than might be possible in less favorable employ- 
ment even at higher wages. [Wisconsin Power & 
Light Co.] 



Benefits Program. The fact that hundreds of em- 
ployees throughout the organization had joined local 
hospitalization plans offering varied types of protec- 
tion indicated a strong demand for one general group 
program that would provide uniform benefits and 
could be supported by the Company and employees 
together. So arrangements were made with an in- 
sula nee company to underwrite such a contributory 
plan. 

The plan was announced late in December and has 
met with such ready acceptance that more than 90 
per cent of the personnel now hold membership in it. 
Benefits of the plan, payable anywhere in the world, 
include broad protection for employees and their de- 
pendents against hospital charges for bed and board, 
and certain extra expenses, and against surgical and 
obstetrical fees. The annual cost of the program, 
which is to be borne jointly by the Company and em- 
ployees, will be determined by the extent to which 
benefits are required, i.e., the actual financial experi- 
ence of the underwriter. For the first full year, the 
Company's share of the cost is estimated at $250,000. 
[Armstrong Cork Company] 



How a retirement plan influences 
employment policy 

One of the best things about a retirement plan is 
that it compels forward thinking and planning on 
executive replacements. Provision must be made so 
there will be a steady strengthening of talent through- 
out the organization to keep pace with our growth 
and opportunities. Since introduction of the plan, 
our management has intensified training of juniors 
and assistants. During the past year, several promo- 
tions were made from within the company and sev- 
eral positions were filled from without. As in the 
past, we will seek young and outstanding recruits for 
this growing business wherever we may find them — 
preferably within the company. [HV.s/ Virginia Pulp 
& Paper~ Co.] 



A first report on group hospitalization 

Latest addition to the list of employee benefit plans 
is a Contributory Group Hospitalization and Surgical 



Safety and accident prevention 

In co-operation with the National Safety Council 
and State Government Departments, all Units and 
Divisions of the Corporation maintain permanent 
safety programs. Continuous vigilance on the part 
of operating and engineering staffs has enabled the 
Corporation to attain high standards of safety in all 
its plants. 

Since 1925, when the Corporation's Safety Award 
Plan was established, 487 awards have been made in 
65 plants and offices throughout the country in recog- 
nition of one year of continuous operation, or one 
and one-half million labor-hours worked by em- 
ployees, without accidents causing loss of time for 
work. During 19 — , 15 plants worked the entire year 
without a reportable accident; w r hile one plant ex- 
tended its record of continuous operation without an 
accident to 18 years. As in previous years, a number 
of the plants also won recognition in various na- 
tional, State and local safety contests and campaigns. 
[Union Carbide & Carbon Corporation] 



144 



SALARIES AND WAGES PAID ANNUALLY 

AND 

CHANGE FROM 1937 



MILLIONS OF DOLLARS 
50 



INCREASE OVER 1937 

DUE TO HIGHER WAGE LEVELS 




sip®! i 

I I I I I I 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



Courtesy, Allied Stores Corporation 



Fig. 105 



50%- 



WAGES PAID 

OUT OF 

SALES DOLLARS 




fS4Q* S94t 1942 (943 IS44 (945 194C 



Courtesy, Snap-on Tools Corporation 

Fig. 106 



EMPLOYEES AVERAGE 
RATE OF PAY „ „.. E 




1941 



1943 



1945 



1947 



Courtesy, The Duplan Corporation 



Fig. 107 



PAY ROLLS and PRODUCTION 




Total Pay Roll 

MILLIONS OF DOLLARS 
1 1.1 



8.9 -| 

te3 teS KB } IS 1 

62 Ijj p| | | j = " ' ■" 







Pounds Produced 
Per Pay Roll Dollar 



178 



160 



JG ¥1 145 150 J5J_ 

LLLlLL 

ALL ALL 

AALLAL 
AjAJHAjAL 



1941 1942 1943 1944 1945 1046 1941 1942 1943 1944 1945 1946 



Courtesy, The Ruber oid Co. 



Fig. 108 



AVERAGE HOURLY EARNINGS 

«m*s per how HOURIY-RATE EMPLOYES IN U.S. 
140 




40 AIL MANUFACTURING— B.t.5 

20 



•29*30 '32 '34 *36 '38 *4Q '42 '44 '46 



WAR YEARS 



Courtc 

Fig. 109 



°ral M«t, 



145 



EMPLOYEES AND PAYROLLS 

(PER CENT INCREASE OVER 1939) 



PER CENT 

300 



250 



200 




NUMBER OF EMPLOYEES 



1939 1940 1941 1942 1943 1944 1945 1946 



Courtesy, General Analine & Film Corporation 

Fi3. 110 



EMPLOYEES AND PAYROLL 



1Q41 n M Iff H [fil H U Id H ™ 100% 
(((((((((((((((((((€> oo% 

1042 ********** 9 8 2% 

(((((((((((((((((((TO o* % 

IQ40 y H Inl In! LI L! If] lij If ffl ' 100.7% 

((C(CC(((((C((((CC((Ctt(ft>.2/.5x 

1044 in u iii y y y y j y^ 

((((((((((((((((((((I!l«fli3,i% 



1945 



i 1 , ,' 11I 1 I 1 103.7% 

(((((((((((((((((((( a^ui. 



1946 , '' li 'i 'J In 'i I I I ns.4% 

((((((((((((((((((((llil((((((((® ./«x 



1Q47 W IjJ 11! W W In! Inl Ill Ill k 

((((((((((((((((((((! 



1 119.4% 



Courtesy, McKesson & Robbins 

Fis. 111 



,119201.255 
Incorporated 



PAYROLL & EMPLOYEES 



PAYROLL 
IN MILLIONS 
OF DOLLARS 



EMPLOYEES 

IN 

THOUSANDS 



122.4 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



Courtesy, National Dairy Products Corporation 



Fig. 112 



146 



RAILROADS ARE PAYING HIGHER 
WAGES AND HIGHER PRICES 




1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 194S 1946 

(NOV.) 



Courtesy, The Chesapeake and Ohio Railway Company 
Fig. 113 



AVERAGE NUMBER OF EMPLOYEES 
AND TOTAL WAGES PAID 




Fig. 114 



if,m FIGURES IN MILLIONS OF DOLLARS) 

Courtesy, The Chesapeake and Ohio Railway Company 

147 



**m 



Effect of 1946 Federal Personal Income Tax 
on Employe Compensation at Each $10,000 Stage 



(Assuming married man with two children, optional standard deduction of $500) 

Thousands Thousands 


$200 








- 
































■ 


3ZUU 












































































— 
















































































150 


■■ '!■ 


150 






























A 


j ■ ; j 








































































Gross 
- Compensation 














































i 

1 




















































>7"7 — -f\ 




100 




















v/L 






i 


___j — 


Income 
Tax 




























j 


i ! "j •■ : 


— 




















A 




















































| j 


•— — 




SO 








i ./ 














j 


50 










| / 






. i 














**\ 


' I 




















1 / 




















i 


1 






30 




Net Compensation 


30 










■ J-^ 
















1 














1 










































10 




/ 




























| 












Gross Com- 
pensation ( 

Federal Tax 

Net Com- 
pensation 


)$1 


0.0 S3 
1.7 1 


).0 

1.1 


2. 


).0 
S.8 


$100.0 
61.9 




1 
$150.0 

104.1 




1 

$200.0 
146.8 


$ 


8.3 


$1 


8.9 


$26.2 


$ 38.1 


$ 45.9 


$ 53.2 



Courtesy, E. I. Du Pont de Nemours & Company 

Fi g . 115 




Courtesy, Calumet and Hccla Consolidated Copper Company 



Fig. 116 



148 




135S-1939 AVERACE 



1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



Courtesy, Caterpillar Tractor Co. 



Fig. 117 



WHAT HAPPENED TO 



KEY 



^ 



AVERAGE HOURLY WAGES PAID FACTORY EMPLOYEES 
PRODUCTION (PAIRS OF SHOES) 



100% 


100% 








I 


^^^^Hjt^ 


B? j$ 




^^\ 




a viz , * 


^Hifc 



1941 



122.04% 



114.12% 




1942 



134.01% 




J BK ' ^5 








i p^ — ■§ 


L 112.48% 








f ^^ 


[§fei 7 


jfezz3 


■11 — ^ 




'IfcL-za 


1 B?*'' '' 3 




( fff r '' ' '~3 


if$£ ^ 


iW/Js. M 



1943 



BASIS — 1Q0% — 1941 



Fig. 118 




191.82% 






1 




w® \ 


BfJf'l' .8 


Jffir" '1 


2B@k—S3 


RSr''" 'In 


Hsflt}''- ~t5 




BfT*^' '^ 












TO" 1 








WHO^, A 








mW' ' * ; 




lwii'> f ' % 




ffiMu- 


■t 


1 92.49'/< 










iflilK;* — r i 


v «. 


W.' 






jap' 1 










fflP ff 


2 


• 


■RmH 


fflffffl"- " 


WP? 


; 


mm. 


; 





1946 



Courtesy, W. L. Douglas Shoe Co. 

149 



1941-1946 
Comparison on Coleman Workers 






MORE WORKERS 




1946 

1808 



MORE WAGES PAID TO WORKERS 




1941 

$2,417,230.78 




1946 

$4,801,065.98 



MORE AVERAGE PAY PER WORKER 



1941 

$1835.41 




1946 

$2,655.46 



MORE INVESTMENT PER WORKER 



1941 

$3,530.65 




1946 

$4,497.23 






Fig. 119 



Courtesy, The Coleman Company, Inc 



150 



COMPARISON OF INCREASE IN AVERAGE WEEKLY WAGES PAID HOURLY EMPLOYEES 















WITH INCREASE IN COST 
(1941 = 100%) 


OF LIVING 
























„ 
















trr" 


























































































































































-^ 


1 


, 












~_-w 


_ ,-, n 




, 




_^— . 


^^__ 


iiii 











180 
170 
160 
150 
140 
130 
120 
110 
100 



JAN. 


JAN. 


JAN. 


JAN. 


JAN. 


JAN. 


JAN. 


1941 


1942 


1943 


1944 


1945 


1946 


1947 



rCOST OF LIVING INDEX 

IB. I 5. Cod of Living — Contumer Price Index, etc.) 



= AVFRAGE WEEKLY EARNINGS Hourly Employees 
(Payroll for week ending clotott fo Jan. 15 each year) 

Courtesy, Sharp & Dohme 



Fig. 120 




Fig. 121 



Courtesy, Inland Steel Company 



151 



For EACH EMPLOYEE, Stockholder Owners have . . . 



WILL PAY 





•year 1915 

Courtesy, General Finance Corporation 



Fig. 122 



LENG SERVI< 



NUMBER OF EMPLOYEES 




Courtesy, Robert Gair Company, Inc. 

Fig. 123 



POSTWAR CAPITAL GROWTH 

CAPITAL INVESTED IN EACH PB JOB 

As of March 31 

$3,637 



BENEFITS PAID BY YEARS— (In Thousands o£ Dollars) 




Courtesy, Pitney-B owes, Ii 



Fig. 124 



[ I I" i I l Pensions 
Sickness 
mTTTm Accident 
MBSM Death 

Expenses 




19J9 1940 1941 1943 1943 1944 1945 194S 

Courtesy, Pennsylvania Telephone Corporation 

Fig. 125 



152 



REPORTING 
ON TAXES 



CHAPTER 11 



Taxes are a subject on which stockholders want 
information (see pages 215, 219, 220, 223, 227) 
and one that management has not neglected to re- 
port on. In addition to treating the subject in 
the commentary and using ample charts and some 
statistical material, many companies have called 
attention to taxes by showing in their income 
statements the company's net income before taxes. 
For criticism of this practice, see page 182. 

CHECKLIST FOR 
COMMENTARY ON TAXES 

Total amount of taxes. 

Comments on what the tax charts included 
in the report show. 

Reasons for increase in accruals shown in 
the financial statement. 

Unusual payments or recoveries during the 
year. 

Reserve for taxes. 

Reserve for contingencies arising out of tax 
questions. 

Additional assessments pending. 

Status of tax claims and litigation. 

Management's attitude toward the nation's 
tax problems. 

How increased taxes affect price of com- 
pany's products and services. 

IDEAS FOR 

CHARTS AND GRAPHS 

The tax story is told well in charts. Here are the 
facts that are readily illustrated: 

1 . The amount of taxes paid for each of a num- 
ber of years. 

2. Breakdown of total taxes into various cate- 
gories, for each of a number of years. 

3. Total taxes for each of a number of years 
compared with: 

(a) Sales volume. 

(b) Total expense. 

(c) Wages. 



(d) Net income. 

(e) Dividends. 

4. Profits before and after taxes. (See also 
charts at pages 76 et seq. and 99.) 

5. Taxes per share of stock. 

6. Taxes per employee. 

7. Taxes per store unit. 

8. Taxes per dollar of: 

(a) Wages. 

(b) Operating revenue. (See also charts at 
pages 76 et seq.) 

(c) Bond interest. 

(d) Dividends paid preferred stockholders. 

(e) Dividends paid common stockholders. 

9. Taxes per customer serviced by public utili- 
ties. This figure is obtained by dividing the 
total taxes for each year by the number of 
active meters in service. Another relation- 
ship shown by public utilities is the propor- 
tion of taxes in the residential bill. 

10. Comparison of trend of price of company's 
product with taxes on product. 

See pages 155 et seq. for examples of tax charts. 

IDEAS FOR STATISTICAL 
DATA ON TAXES 

Below are various ways in which tax tables are 
presented in the annual report. Usually, the 
table is included in the comment upon taxes. 



Year 
19— 



TAXES 

Per Share of 
Capital Stock 

$ 



Per Employee 
(Average Number) 
$ 



Year 
19— 




Total Taxes 
Per Common Share 


Taxes Based 
on Income 


Other 
Taxes 

$ 


$ 




S 



153 



REPORTING ON TAXES 





TAX INFORMATION 












19— 


19— 










Per Cent 




Per Cent 




Increase 




Amount of Total 


Amount 


of Total 


19- 


- over 1 9 — 




$ 


$ 




$ 












































































State— Other 








































$ 


s 




$ 



















DETAILED TAX COMPARISONS 



19— 



Local Taxes 

Real estate 

Special franchise 

Cross receipts 

Public utilities excise 

Conduit companies excise 

Sales, compensating use and personal propsrty 

Miscellaneous 

Total local taxes 

State Taxes 

Gross earnings 

Excess dividends 

Franchise 

Unemployment insurance 

Public utilities gross income 

Miscellaneous 

Total state taxes 

Federal Taxes 

Income 

Capital stock 

Electrical energy 

Insurance contributions (old age benefits) 

Unemployment 

Miscellaneous 

Total federal taxes 

Total taxes 

Charged to: 

Operating taxes 

Materials and supplies 

Non-operating taxes 

Total taxes 

Special charge re surplus items 

Total of taxes and special charge for tax adjustments re 
surplus items 



154 



19— 9- 

$ $ 



¥ 



TAXES PER SHARE OF COMMON STOCK 



Taxes — while lower 
in 7946 — are still 
above pre- war levels 



$2.45 



$:.! 



$1.45 



$0.79 




$1.17 



: 



$1.69 



1839 1935 1949 1*41 1942 1943 1944 1945 194$ 

tewd on 10,529.230 shore* ol common slock, 1930-1942: 8,160,247 dwti, 1943; 
8,160,317 iharas. 1944; 8,199,948 shores, 1945; one) 9,726,240 shown, 1946. 



Courtesy, Philadelphia Elcctrie Company 

Fig. 126 

Government Gets More Than Stockholders or Employees 




o-oooc 

For Every Dollar Paid in Dividends 

to Preferred Stockholders, 

$3.87 is paid in Taxes 



- 



For Every Dollar Paid in Wages, 
$1.37 is Paid in Taxes 




Black Coins — Taxes; Blue Coins — Dividends and Wages. 

Courtesy, Wisconsin Power and Light Company 

Fig. 127 



12 

10 

8 

6 

4 

2 





PROFITS BEFORE 
AND AFTER TAXES 

(in Millions of Dollars) 



In 
Thousands 

2700 



PROFIT BEFORE INCOME TAXES 
PROFIT AFTER INCOME TAXES 




In 
Thousands 



Courtesy, Michigan Steel Tube Products Company 

Fi 3 . 128 




A —Net To x Rfr«ov*t*y 



1945 1946 

Courtesy, Nash-Kclvinator Corporation 



155 






PROFITS AND TAXES 



TAXES 



NET 
PROFIT 

PROVISION FOR 
CONTINGENCIES 



IN MILLIONS 
OF DOLLARS 




Courtesy, Cclanese Corporation of America 



Fig. 130 



HOW GOVERNMENT AND COMPANY SHARED NET REVENUES FROM SALES AND SERVICES 



17- 
16- 
15- 

14- 

13- 

</> 12- 

5 "" 

o io- 

S 9 " 

to 8- 

o 7- 

i 

± 6- 

S 5- 

4- 

3- 

2- 

I- 



$16.80 



GOVERNMENT SHARE 




COMPANY SHARE 



$3.83, 



$2.12 

Wfn'l 





1940 

(MILLIONS OF OOLLARS) 

SALES & SERVICES $18.48 



1941 
$30.80 



$13.01 

i ' ' r 




1943 
$111.45 



1944 
$125.14 



1945 
$141.45 



Courtesy, Blaw-Knox Company 



156 



Fig. 131 



MILLIONS 
OF 

DOLLARS 

65 
60 
55 
50 
45 
40 
35 
30 
25 
20 
15 
10 
5 



NCOME AND TAXES 

iStt MtUMS OF SOIURSJ 



FOREIGN INCOME 



8.S.A., GAKADA AND CUBA INCOME 
BEFORE TAXES 

GOVERNMENTAL TAXES 




1937 1938 1939 1940 1941 1942 1943 1944 1945 1944 



Courtesy, F. W. H'oolworth Company 



Fig. 132 



CHART SHOWING CONSOLIDATED 

SALES VOLUME, PROFIT BEFORE 

TAXES, AND PROFIT AFTER TAXES. 



1936-1946 




Fig. 133 



- *S4,209, S37 . 7a 



50 
45 
4fl 
3S 
30 
J5 

IS *°* 



"46. 



■<to 



*/B 



"'**> 



•**> 



*<S 



Courtesy, Abbott Laboratories 



157 



DECLINE IN RETAIL PRICES OF GASOLINE 

AS COMPARED WITH THE 
INCREASE IN STATE AND FEDERAL GASOLINE TAXES 

ANNUAL AVERAGES OF FIFTY REPRESENTATIVE CITIES 
IN THE UNITED STATES 



30 



25 



I 
■ 



SHOWN IN CENTS PER GALLON 

SERVICE STATION PRICE EXCLUDING TAXES 
STATE AND FEDERAL TAXES 



1 




25 



1920 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 



Courtesy, The Texas Company 



Fig. 134 



158 



rr rrrr 







TOTAL TAXES 

49.0 



46.8 



IN MILLIONS 
OF DOLLARS 



25.4 



16.2 



JU LIUAl 





1941 

* WITHOUT ADJUSTMENT FOR AMORTIZATION * + WITH ADJUSTMENT FOR AMORTIZATION 







TAXES PER SHARE OF 

CAPITAL STOCK 
$ $ 

14.84 1554 



TAXES PER DOLLAR OF 

OPERATING REVENUE 

(IN CENTS) 




'41 



'42 



'43 



'44 '45 '41 



'42 



'43 



'44 



'45 



Fi 3 . 135 



Courtesy, Baltimore &■ Ohio Railroad Company 
Graphics by Pick-S, N. Y. 

159 



TELLING THE 
OWNERSHIP STORY 



CHAPTER 12 



To tell the story of ownership, management must 
analyze its stockholder records. How this is done 
is discussed at page 230. From the analysis, man- 
agement gets a better idea of the type of report it 
ought to make available to stockholders (see page 
16). 

Information about the owners should be in- 
cluded in the report for the following reasons: 

1. Stockholders and analysts have indicated 
an interest in knowing who owns the company. 
This is shown in the surveys in Chapter 17. 

2. Stockholder ownership has broadened over 
the years and is continuing to expand. See foot- 
note at page 229. It is well to let it be known 
that stockholders represent a substantial part of 
the public, that large numbers are sharing in the 
benefits of corporate enterprise. According to 
Opinion Research Corporation, members of stock- 
owning families constitute about a fifth or fourth 
of the total population. In giving the proportion 
of stock held by life insurance companies and 
banks, the point can be made that these institu- 
tions represent thousands of depositors and policy- 
holders. 

3. Telling the ownership story offers an op- 
portunity to explain the significance of the stock- 
holder, especially in reports to employees and the 
public. The examples from employee reports at 
page 269 contain ideas that can be used in any 
annual report. 

CHECKLIST FOR 

COMMENTARY ON OWNERSHIP 

Importance of the stockholder to the busi- 
ness. 

How stockholder's investment has helped 
the local community. 

Why stockholders invest in the company. 

Risks taken by stockholders. 

Comments on what the charts included in 
the report show. 

Growth in the number of stockholders. 
160 



Geographical distribution. 
Occupational distribution. 
Distribution among men, women and in- 
stitutions. 
Average holdings. 
Employee stock-ownership. 

IDEAS FOR 

CHARTS AND GRAPHS 

The number of stockholders and the distribution 
of stockholders by size of holdings, class of holders 
and the like lends itself to simple graphic presen- 
tation. Here are specific ideas for illustrating 
who owns the company. 

1. Number of stockholders in each of a succes- 
sion of years. 

2. Map showing distribution of shareholders by 
states. 

3. Distribution by amount of holdings. 

4. Distribution according to women, men and 
institutional holders. 

5. Average number of stockholders and employ- 
ees in each year over a number of years. 

6. How much capital stockholders have invested 
for each employee. 

7. How much each stockholder pays in taxes 
through company tax bill. 

See pages 162 et seq. for examples of ownership 
charts. 

IDEAS FOR STATISTICAL 
DATA ON STOCKHOLDERS 

Below are tabular arrangements for presenting 
statistical data concerning stockholders. 



SHAREHOLDERS 
Year Number 19 or less 20-99 100-199 200-Over 



TELLING THE OWNERSHIP STORY 



GAIN IN NUMBER OF STOCKHOLDERS— 
19— TO 19— 



Stockholders 

Shares of Stock 

Average Shares per Stockholder . . . 

Number of Stores 

Average Number of Stockholders 
per Store 



19— 



19— 



Stockholders of record at December 31, 19 — were: 

Stock- Per Shares 
holders Cent Held 


Per 
Cent 






Corporations and part- 




Insurance companies . 
Investment trusts .... 

* Includes churches, colleges, hospitals, societies, etc. 



State 



Geographical Location 
Common Preferred 

Number of Shareholders Number of Shares Number of Shareholders Number of Shares 







Geographical Distribution 


Average Number of 
Shares Held by 




State 


Total No. of Holders % of Total Holders Total No. of Shares 


Stockholder 






QUANTITATIVE GROUPINGS OF STOCKHOLDERS 








Number of % of total Total shares 


% of total 






stockholders stockholders held 


shares 


Own 


1 to 9 shares 






Own 


10 to 24 shares 






Own 


25 to 99 shares 






Own 


100 to 199 shares 






Own 


200 to 299 shares 






Own 


300 to 399 shares 






Own 


400 to 499 shares 






Own 


500 to 999 shares 






Own 


1 000 to 1 999 shares 






Own 


2000 to 2999 shares 






Own 


3000 to 4999 shares 






Own 5000 or more shares 
TOTALS 















EXCERPTS FROM 
COMMENTS ON OWNERSHIP 

Dominion Stores, Ltd. devoted two facing pages 
of an annual report to its stockholders. The left- 
hand page showed the picture of a typical house- 
wife carrying a bag of groceries. At the top of 
the page and alongside the photograph was the 
following statement. The facing page carried 



photographs of persons typical of the various 
groups of stockholders — thirty-four in all. 

Here's Why the Human Touch Prevails at 
Your Dominion Store 

2149 men and women from all walks of life influence 
our friendly food service 

We're proud of the great family of everyday folk 
who own Dominion Stores. They represent a great 

161 



TELLING THE OWNERSHIP STORY 



many walks of Canadian life where your Dominion 
Store is known and appreciated. Their combined in- 
vestment has made possible a greater food service for 
over a million housewives who are being served by 
Dominion Stores in hundreds of Canadian commu- 
nities. 

The Management and Directors of Dominion 
Stores feel a great sense of responsibility as custodians 
of so many people's savings. This is a challenge to 
the Management to make Dominion Stores outstand- 
ing in every way, so that our valued customers will 
feel that here is the friendliest atmosphere, the finest 
quality, the greatest variety at the most reasonable 
prices . . . that in Dominion Stores the human touch 
prevails! 

Housewives constitute the largest group of share- 
holders, being double the next nearest classification 
and over three times the second. 



Stockholders 

American Telephone and Telegraph Company 
continues to be more widely owned than any other 
corporation, with 695.660 stockholders of record at 
the end of 1946. This is 11,763 more than a year 
aero. More than one-half of the stockholders are 



women. The average number of shares held was 29.6 
and no stockholder held as much as 1/2 of 1 per cent 
of the total stock outstanding. Holders of 1 to 5 
shares numbered 207,400 while 655,900 stockholders, 
or 94 per cent of the total, held less than 100 shares 
each. Holders of 100 shares or more, including in- 
surance companies and other institutions represent- 
ing additional thousands of investors, totaled 39,800 
and held 47 per cent of the stock. Approximately 
50,000 Bell System employees own stock in the Com- 
pany. 

Of the total shares, 43.1 per cent was held by 
women, 25.7 per cent by men, 8.8 per cent in joint ac- 
counts, and 21 per cent by trustees, insurance com- 
panies, corporations and private firms; 1.4 per cent 
was in the names of brokers. There were also at the 
end of 1946 about 26,900 holders of common stock of 
the Company's principal telephone subsidiaries. 

The Bell System belongs to people in all walks of 
life, in the cities, towns and rural areas of America. 
Five states have more than 50,000 stockholders each, 
26 states more than 5,000 and no state has fewer than 
500 stockholders. The capital of the Bell System 
comes from the savings of the many rather than the 
wealth of the few. [American Telephone ir Tele- 
graph Co.] 



a^<&^#^^<$^ 




tcsy. Standard Oil Company (Nezv Jersey) 



162 



Fi 3 . 136 



THOUSANDS 



NUMBER OF STOCKHOLDERS 

AMERICAN TEL. AND TEL. CO. 



THOUSANDS 



700 
<500 
500 
400 
300 
200 



100 - 



nnnnnnfl 



- 500 



700 




1920 



1925 



1930 1935 

END OF YEAR 



1940 



1946 



Courtesy, American Telephone and Telegraph Company 

Fi g . 137 




n 



MORE THAN 

ONE-THIRD 

OWN 1 TO 10 

SHARES 




ABOUT ONE- 
QUARTER 
OWN 11 TO 
25 SHARES 



n 




The people who own General Motors consti- 
tute a broad cross-section of America — 
mechanics, housewives, storekeepers, nurses, 
teachers — of practically every age and walk 
of life. Women are in the majority. Many 
GM employes, too, have invested part of their 
savings in General Motors. 



ABOUT 
ONE-SIXTH 
OWN 26 TO 
SO SHARES 




ABOUT 
-EIGHTH 
OWN 51 TO 
I Ml© SHARES 



in 



ABOUT 
ONE- 
TWELFTH 
OWN lOl 
OR MORE 



Courtesy, General Motors Corporation 



Fi 3 . 138 



163 



SHAREHOLDERS 
100,000 — 



KENNECOTT COPPER CORPORATION 
SHAREHOLDERS 

AVERAGE FOR PERIODS 




1916 1921 1926 1931 1936 1941 
TO TO TO TO TO TO 

1920 1925 1930 1935 1940 1945 



1946 



SHARES 



HOLDINGS AS OF NOVEMBER 29, 1946 



10 15 20 25 30 35 40 45 50 

PERCENT OF TOTAL 



Courtesy, Kennecott Copper Corporation 



Fig. 139 



GEOGRAPHICAL DISTRIBUTION OF 
STOCK AND STOCKHOLDERS 
AS OF DECEMBER 31, I946 



laoooo 

7I.E 


% 




STATES 


SHARES 


STOCK 

HOLDERS 


150.000 — 






400 


4 








50 


1 


140 000 — 


Arkansas 


250 


1 




Calitorina 


1341 


17 




Color -oo 


50 


2 


130 000 — 




28996 


690 






504 


14 




GlQROi. 


526 


8 


120.000 - 


Illinois 


3089 


16 






45 


2 






62 


1 


1 10000 — 


Kentucky 


395 


4 






Maine 


245 


6 




Mar, land 


222 


3 


100.000 — 


Massachusetts 


7.666 


123 






Michigan 


1.706 


18 


90000 — 


Minnesota 


302 


6 




M.ssouri 


125 


1 






125 


1 


80,000 — 


New Hampshire 


466 


5 






4396 


57 






62 


1 


70.000 — 


New Yorr 


153632 


622 






North Carolina 


10 


1 


60000 — 


Ohio 


910 


12 




Oklahoma 


222 


5 






3802 


44 


50.000 — 


Rhooe Island 


880 


15 




Tennessee 


1.600 


16 




Te.as 


1.060 


9 


40000 — 


Vermont 


289 


4 






Virginia 


135 


3 




- 




Washington 


65 


1 


30,000 




Washington DC 


128 


5 




Wisconsin 


10 


1 


20.000 — 








59* 










Canada 


J3L 


2 


lo.ooo — 


EhGLAND 


5 


1 


IB ^-'7'. I4>.l 


5.000 — 


St Thomas V.I. 


100 


1 











SHARES 

OF 
STOCK— II 

STOCK _ 
HOLDERS 



All 
Other 



TOTAL— 214.002 
TOTAL 1,723 



WHO OWNS 
HARVESTER? 



Individuals 



MILLION 
SHARES 

f5 



Trustees, Executors, Other Fiduciaries 



Banks, Brokers, Nominees 



Educational, Religious, Charitable Institutions 
Investment Companies and Trusts 

Insurance Companies 
Other Corporations and Firms 



Courtesy, The Gray Manufacturing Company 

Fi g . 140 



Courtesy, International Harvester Company 

Fig. 141 



164 



\ n 



rer 






XI 






II 



"' 21,006 
20,000 
19,000, 
18,000 
17,000 
16,000 
15,000 
.14.00© 
13,000 
12,000 

; 11,000 

10,000 

•■- 9,080 

8,000 

' ;?.ooo 

^000 
5,000 
4,000 
3,000 
2,000 
1,000 



1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 



•CATERPILLAR" EMPLOYEES AND STOCKHOLDERS 

Average Number Each Year 



EMPLOYEES 
STOCKHOLDERS 



Fi g . 142 



Courtesy, Caterpillar Tractor Co. 

165 



- 






REPORTING ON PRODUCTS, 
RESEARCH, ADVERTISING AND SELLING 



CHAPTER 13 



In reporting on the company's products and how 
they are sold, the objectives usually are: (1) To 
give the reader an accurate idea oi what the cor- 
poration does, (2) to gain the reader's interest in 
the company's products, (3) to make customers of 
stockholders, (4) to boost the company's prod- 
ucts, (5) to gain goodwill of dealers and distrib- 
utors. 

The subject divides itself into four parts: (1) A 
description of the products or services and proc- 
esses, (2) research, (3) advertising, (4) selling. 
Separate checklists are given below for each of 
these topics. In some reports, the section on 
products is actually developed according to this 
four-part arrangement. In others, the company's 
products are divided into groups and the story is 
told separately for each group. 

Caution. A word of caution must be given 
against making the products-portion of the annual 
report the dominating feature. The annual re- 
port is not essentially a promotion piece, nor is it 
a catalog. It is an account of the year's perform- 
ance. Some companies have therefore put all the 
information concerning the company's products 
in a separate booklet (see page 18) to be sent 
with the annual report. On the other hand, 
many companies have succeeded in giving consid- 
erable information about their products without 
making the product-section dominant. The Wal- 
worth Company actually stitched into one of its 
annual reports the current copy of its sixteen-page 
magazine Walworth Today. This organ is pub- 
lished to promote the sales of the company's prod- 
ucts. It was so obviously a magazine sent along 
with the report that it did not appear to dominate 
the report. 

CHECKLIST FOR 
COMMENTARY ON PRODUCTS 

List of products and their trade names. 
What competition the company meets. 
Competition as an element of free en- 
166 



terprise might be mentioned in giving 
the facts about accomplishments under 
the American business system. 

Uses of products. 

Products produced by each division. 

Distinctive features of product and "fam- 
ily" characteristics of line. 

Price policy. 

Quality. 

Construction of products. 

Product origin and evolution. 

New products. 

Recent trends in the product. 

Tests of products and awards in compe- 
tition. 

Unusual performances. 

Sample of products to be sent with annual 
report (see page 202). 

See also checklist for reporting on produc- 
tion, page 47. 

CHECKLIST FOR 
COMMENTARY ON RESEARCH 

Management's attitude toward research, 
development and engineering. 

Present and future policies. 

Functions of the research department. 

Objectives of the research. 

Fields in which research has been done. 

Projects that were worked on during the 
year. 

Accomplishments by the research depart- 
ment; discoveries and developments. 

Cooperation with college and university 
laboratories. 

Amount expended during the year on re- 
search. 

Cumulative expenditures for research. 

Personnel engaged in research and devel- 
opment. 

Patent department's growth. 

Appropriation for research. 






REPORTING ON PRODUCTS, RESEARCH, ADVERTISING AND SELLING 



CHECKLIST FOR 

COMMENTARY ON ADVERTISING 

Management's opinion of the value of ad- 
vertising;. 

Advertising media used during the year. 

Chief aim of advertising during the year. 

Comments on specific campaigns. 

General advertising policy of the company. 

Reproduction of recent or outstanding ad- 
vertisements. 

What was appropriated for advertising. 

Campaign plans in the making. 



CHECKLIST FOR COMMENTARY 
ON SELLING AND DISTRIBUTION 

Location of sales territories. See use of 
maps for this purpose, page 203. 

Who buys the company's products; types 
of customers. 

Distribution of product among different 
classes of customers as compared with a 
similar distribution for the industry in 
general. 

Salesmen's training. 

Number of salesmen. 

Number of orders per salesman. 

Sales volume per man. 

Salesmen's earnings. 

Distribution of company's products in 
world markets. 

Foreign business. 

Special services offered to customers. 

Keeping pace with the changing market. 

Distribution policies. 

Consumer relations. 

Sales plans. 

Price ransre. 

Warehouse system. 

Service policies. 



EXCERPTS FROM COMMENTS ON 
PRODUCTS AND HOW THEY ARE SOLD 

The ideas presented below are but a few of many 
that have been used in annual reports. Those 
selected show originality, adaptability and good 
reporting. 

For a straightforward presentation of the com- 
pany's production and products, Celanese Corpo- 
ration used the following copy: 



Production and Products 

Fundamentally a chemical company, the major 
product of Celanese Corporation is cellulose acetate 
which, by a combination of processes, can be made 
either into a textile yarn or a plastic. The opera- 
tions of Celanese are three-fold: textiles, plastics, 
chemicals. 

In producing textiles, the Company: 

1. Manufactures and sells Celanese yarn and 
staple fibre principally to textile mills where it 
is woven or knitted into various fabrics for ap- 
parel, home furnishings and industrial uses. 

2. Manufactures and sells fabrics made of Cela- 
nese yarn to manufacturers, wholesalers and re- 
tailers. These fabrics include satins, jerseys, 
crepes, ninons, moires, sharkskins, suitings, 
damasks and many others. Manufacturers 
make them up into finished merchandise for 
the consumer. Typical examples include cloth- 
ing, draperies, underwear. Celanese fabrics 
are also sold as yard goods by department 
stores. 

In producing plastics, the Company manufactures 
and sells a range of basic cellulosic thermoplastics to 
industrial users for making finished products. 

These plastics fall into three principal groupings: 

1. Molding materials for use in molded parts and 
articles, such as toothbrush handles and elec- 
trical parts. 

2. Films and foils for use in such typical applica- 
tions as transparent packaging including rigid 
containers, index tabs and laminations to other 
materials. 

3. Sheets, rods and tubes for such uses as clothes 
hampers, tool handles, fountain pens and many 
others. 

The Company also produces reinforced, non-shat- 
tering plastic glazing, which is marketed under the 
trade name, Vimlite. 

In manufacturing chemicals, the Company: 

1. Produces many of the basic chemicals used in 
making yarns and plastics. 

2. Produces and sells various chemicals to indus- 
try. Typical of Celanese production of or- 
ganic chemicals are acetic acid, formaldehyde, 
and methanol — consumed in large quantities 
by many industries. [Celanese Corporation of 
America] 

The same company made use of the bar -chart 
in Fig. 147, page 173 to show its cumulative ex- 
penditures for research. 

167 



REPORTING ON PRODUCTS, RESEARCH, ADVERTISING AND SELLING 



LaPlante-Choate enlivened a story on the de- 
velopment of its product with the attractive illus- 
tration in Fig. 144, page 170. The hills in the 
background were blue, the color used in the re- 
port. 

Sanger Bros, included in one of its reports a 
two-page spread (see page 169 for one of them) 
describing the services offered to patrons. 

Goodyear devoted a substantial part of a report 
to the company's products and how they are sold. 
One page contained photographs taken in differ- 
ent parts of the world. They were identified un- 
der the heading: "Goodyear products serve in 
every clime." Another page told about adver- 
tising. On this page, there were line cuts on the 
outer and lower margins to illustrate the adver- 
tising media used. The statement (see page 172) 
contained a clear opinion of the value of advertis- 
ing. Succeeding pages told about dealer educa- 
tion, salesmen's education and independent deal- 
ers. In each instance, the copy was surrounded 
on the outer and bottom margins by photographs 
relating to the subject discussed. 

Michigan Consolidated Gas Company showed 
who uses its products with the full-page illustra- 
tion reproduced in Fig. 145 at page 171. 

Standard Oil Company of California devoted 
two pages of one report to t lie company's adver- 
tising program. One of them is reproduced in 
Fig. 149, page 174. 

See also Fig. 148, page 173 and Fig. 150, page 
175 for graphic stories of principal users of com- 
pany products. 

An example of a comprehensive statement on 
research is reproduced from a Cudahy Packing 
Company annual report. 



Research 

The scientific department of our organization, the 
laboratory, has two important functions. One of 
these is the control of the quality of our products and 
the ingredients and supplies we purchase. Both our 
own and competitors' products are constantly being 
analyzed and examined by the laboratory to make cer- 
tain that our standards are being maintained, and 
that our quality stays abreast or ahead of that of our 
competitors. The other function of the laboratory is 
research. This consists of the development of new 



products and new methods of manufacture and im- 
provement of existing ones. During the year just 
closed, the director of the laboratory, as well as other 
members of the staff, returned from the armed serv- 
ices so that the work of the research staff has been 
pushed with more vigor than was possible throughout 
the war years. In the past year important research 
has been done in the fields of glue manufacture. 
New processes have been worked out both for the 
purpose of improving the glue and producing it more 
economically. * * * Considerable research has been 
done on fats and oils, and oil made from beef fats for 
frying pop corn shows promise of favorable ac- 
ceptance. * * * A method for producing a plastic 
oleo oil for confectionery manufacture has been de- 
veloped with a neutral flavor and superior keeping 
qualities. * * * A series of liquid oils made from 
lard is ready for production. Such oils can be made 
to remain crystal clear down to very cool room tem- 
peratures. They should be especially convenient and 
satisfactory for pan greasing or other purposes where 
a baker desires to use a liquid fat. They also have 
the advantage of better keeping qualities. * * * 
Research on improvement of the keeping quality of 
fats and oils through new antioxidants has shown 
progress. * * * Progress also has been made in pro- 
longing the freshness of margarines and shortenings. 

* * * Our laboratory always has been a pioneer in 
the application of technological progress in the prep- 
aration of lard. Research during the past year has 
resulted in a shortening made from lard, which is a 
superior product for all culinary uses, and has much 
improved keeping qualities. * * * Considerable re- 
search has been done on new synthetic detergents for 
use in the preparation of cleansing materials of our 
sanitation and maintenance department, which serv- 
ices institutions, office buildings, hotels, factories, etc. 

* * * On account of the increased demand for 
pharmaceutical products it has been necessary to do 
research work on a broad scale to develop ways of in- 
creasing our output of standard products and to de- 
velop new ones. * * * Great interest has been 
aroused in recent years in amino acids resulting from 
the hydrolysis of proteins; and because of the im- 
portant part they play in human nutrition, it is rea- 
sonable to expect they will become as familiar to the 
general public as vitamins are now. Our research 
program on amino acids is being pressed and already 
has developed some important and unique prospects. 

In keeping with our policy of furthering scientific 
effort not only within our own organization but 
through other agencies it is our custom to make 
grants to colleges and universities for research in the 
field of nutrition. [Cudahy Packing Company] 



168 






BUILDING THROUGH SERVICE 



Very few department stores ever achieve the 
important role Sanger Bros, plays in the lives 
of its patrons. In addition to offering the 
Southwest's largest collection of dependable 
quality merchandise, Sanger's offers its patrons 
numerous services which bring them added 



conveniences, enjoyment and entertainment 
throughout the year. These services are 
brought to patrons without cost and are but 
a few of the many reasons why this great store 
has, and deserves, the reputation of being 
"The Best Place to Shop for All." 




FREE STREETCAR OR BUS FARE 

Sanger Bros, is convenient to nearly all cross-town streetcars and 
busses, for nearly all stop at one of Sanger's doors. Sanger Bros. 
provides patrons with free bus or streetcar transportation by re- 
funding eight-cent car tokens with fifty-cent purchases, or two 
eight-cent tokens with purchases of $1.50 or more. This is a long 
established Sanger service to patrons. 



FREE PARKING GARAGE FOR PATRONS 

You can park in Sanger's spacious garage free for four hours with 
a purchase of SI. 00 or more. Just across the street from Sanger's 
main store, this convenient parking system enables patrons to 
use their cars for shopping, especially in rainy weather. 





SUPERVISED PLAY ROOM FOR KIDDIES 

On Sanger's 8th floor, the kiddies have a room all their own. It's 
a spacious playroom, gaily painted with circus murals and 
equipped with safe playthings that delight young hearts. Mothers 
can leave kiddies for hours, and shop with the assurance that they 
are being well taken care of by a specially trained attendant. 



Fi 3 . 143 



Courtesy, Sanger Bros., Inc. 



169 



r 



In the early days, earth was moved by human powe 





Higher 



choice for the future 



Courtesy, La Plantc-Choate Manufacturing Co., Inc. 



Fi g . 144 



170 







■■■ ■■■'■■ ■ ■■ ■.' ,■■.;.■■■ - ■ ■ ■ ■■ ■■ ■ ■. 

Fig. 145 



Courtesy, Michigan Consolidated Gas Company 

171 



.in Magazines 





in Farm Publications 




How your cormj^mv sells its products 




2§gE§££§^§^^^£r^^^^3§3i§3§3as 



Practically every family, business and industry is a prospect 
for Goodyear products of one kind or another. That is why 
your company has long been a consistent user of advertising 
of all forms to reach its millions of potential customers. Ad- 
vertising is the most economical method of mass selling, and 
the most effective means of keeping both the company and its 
products prominent in the public's mind. 

Most people realize today that advertising is an economic 
force that works to reduce the price of goods to the public. It 
does so by creating a demand large enough to permit use of 
mass-production methods that cut unit cost of manufacture. 
This saving is passed on to the consumer in the competition 
between manufacturers for business, as the company which can 
offer better values at lower prices has the biggest sales advantage. 

In the case of Goodyear tires, this saving over the years 
has amounted to many dollars in the price of a tire, yet the 
advertising cost per individual tire is only a fraction of a cent. 

During the current year when the demand for rubber 
products greatly exceeded supply, Goodyear advertising has 
been devoted primarily to maintaining the public's preference 
for Goodyear quality Numerous surveys indicate that Good- 
year will enter 1947 with the highest consumer preference for 
its products in history, assuring continued sales leadership. 



by Television 



... by Direct Mail 



by Radio 





. . by Displays 




Courtesy, The Goodyear Tire & Rubber Company 



Fi g . 146 



172 



CUMULATIVE EXPENDITURES FOR RESEARCH 



$12,000,000 



$9,000,000 



$6,000,000 



$3,000,000 




1925 1926 19.27 1928 1929 I9J0 1931 1932 1933 1931 1935 1936 1937 1938 1939 1910 1911 1912 I91J 1911 1915 



Courtesy, Cclanese Corporation of America 



Fh. 147 



<& 



CONVERTING 
AND 

PROCESSING 



JOSIERS 

DEALERS 

DISTRIIUTOSS 



■ ■ ■ ■ "" 

ITT mm 
I I I limn 



CONSTRUCTION 

AND 

PRODUCTS 



2.0 



AUTOMOTIVE 



2£ 5r I Z l. JtAlt 

-rTOfiryfl^B. TRANSPORT 



MACHINERY. IN- 
DUSTRIAL EQUIP- 
MENT AND TOOLS 



aECTltlCAL 

MACHINERY AND 

EQUIPMENT 







APPLIANCES 
UTENSILS 
CUTLERY 



OTHER DOMESTIC 

AND COMMERCIAL 

EQUIPMENT 



» 



3.9 



MISCELLANEOUS 



1.8 
I 24 



12.6 



13.8 




PRINCIPAL USERS OF 

Allegheny Ludlum Products 

IN 1946— 11 MONTHS 

Expressed in percentages of tola! dollar values 



21.0 




23.3 



wmummm 



Fi g . 148 



- .; _ _ I 

Courtesy, Allegheny Ludlum Steel Corporation 

173 




ADVERTISING STANDARD OF CALIFORNIA PRODUCTS 

The Company's advertising efforts were intensified in 1946, in step with the 
general rise in marketing activity. Our trademarks and our products were 
constantly kept before the public and our position in a highly competitive 
market was maintained. The major programs, were: 



CHEVRON SUPREME- NEWSPAPER ADVERTISING 

With wartime travel restrictions lifted, our adver- 
tising told motorists about war-developed Chevron 
Supreme Gasoline. "Rediscover the West" was the 
basic theme, illustrated by reproductions of our 
Scenic Views. Advertisements appeared in news- 
papers with total circulation of nearly six million. 



"RPM" • THE SATURDAY EVENING POST 



In support of expanding facilities for marketing 
RPM Motor Oil throughout the United States, full- 
page, color advertisements were used to tell the 
public about "RPM" and help register the name. 



"RPM" • NEWSPAPER ADVERTISING 

mmtwm i ■ ■ mtmm»mmmmmmmmm : mtj iimmmmm mrm m mrmmimi,n 

"In The Driver's Seat" was a series combining hu- 
man interest with factual information about RPM 
Motor Oil. These advertisements appeared through- 
out the West in one hundred and sixty-five news- 
papers, reaching five and a half million readers. 




174 



CHEVRON DEALER NEWSPAPER ADVERTISING 

Full-color advertisements in Sunday magazine sec- 
tions emphasized the locally-operated Chevron 
Gas Stations . . . focused attention on the cream- 
green-and-burgundy color design, home-owned serv- 
ice, and the availability of Company products. 



Courtesy, Standard Oil Company of Californi 



Fi g . 149 



I 





INDUSTRIES THAT USE MATHIESON CHEMICALS 






/ IMMMi 


sV w : 






Aircraft 






. 




. 


. 






. . 










Aluminum 








. 


. 










. 






Bakeries 




• 






















Be* crates 




. 




















. 


Chemicals 


























Cleansers 




. 




• 




. 














Dairies 




. 




















• 


Disinfectants 










■ 


. 








• 




• 


Explores 










• 








• 








Fife Extinguishers 




• 














• 








Food Plants 
























• 


Gasoline Refining 




















■ • 






Glass 


























Government 


























Ice Cream Plants 




• 






















Iron and Steel 




. 






• 




• 










• 


Laundr.es 




• 




• 












> • 






Leather 




















> • 






Lubr.cat.ng O.ls 










. 








• 








Machine Tools 


























Meat Plants 
























• 


Non-Ferrous Metals 








• 


• 




• 






> • 






Pa.nt & Varnish 


























Paper Mills 
























• 


Pharmaceuticals 


























PI .StlCS 




• 




• 


• 










■ • 






Public L't.l.t.es 










• 








• 


■ • 




• 


Raton 


























Refrigeration 








• 










• 








Rubber 




• 






• 










■ • 






Sewage Disposal 










. 








• 










Soap 






• 


• 












> • 




• 


Storage Batter.es 




. 






















Synthetic Detergents 




• 






• 














• 


Textile Mills 


























/ 




Water Purification 







































Courtesy, The Mathieson Alkali Works, Inc. 

Fig. 150 



175 



MAKING FINANCIAL 
STATEMENTS UNDERSTANDABLE 



CHAPTER 14 



The tendency to make all published financial 
statements more complete and informative be- 
came evident in the twenties. At that time, some 
forward-looking corporate officers began to see in 
the broadening of corporate ownership a need for 
giving investors more understandable financial 
information. The movement gained ground dur- 
ing the economic crisis of the thirties. The Gov- 
ernment's investigations of corporate and stock- 
market practices after the collapse of the securities 
market in 1929, made corporations want to allay 
stockholders' suspicions that important facts were 
being withheld. Annual reports, consequently, 
began to offer more comprehensive information. 
Corporations that wanted to raise money through 
public issues were required by the Securities and 
Exchange Commission to prepare detailed finan- 
cial statements for public use. Companies with 
stocks listed on exchanges had to make public 
financial information that previously was known 
only to top management. These requirements 
loosened up attitudes toward giving out informa- 
tion. 

As management began to give more informa- 
tion in the annual report, the function of the re- 
port broadened. Management began to want its 
stockholders and others to read their annual re- 
ports. It therefore improved the format and liv- 
ened up the narrative with charts, graphs and il- 
lustrations. Then it tackled the job of making 
the formal financial statements understandable. 

The effort is still in the experimental stage. A 
few outstanding companies have introduced their 
own ideas of simplification. Each one has deter- 
mined for itself what everyday words should be 
substituted for troublesome accounting terms. 

The advances that have been made in clarifica- 
tion may appear prodigious, but they are minor 
when compared with the improvements that re- 
main to be made. Many more corporations must 
give their stockholders, workers and the public 
complete, fair, unbiased, understandable and re- 
liable accounting information if confidence in pri- 
176 



vate business enterprise is to be sustained and 
improved. The remarks at page 31 about pre- 
senting: accountino data in two forms and the 

a o 

ideas for better financial reporting given at pages 
31 et seq., should be read in conjunction with 
this chapter. 

OLD METHODS OF CLARIFYING 
CONVENTIONAL FINANCIAL STATEMENTS 

The techniques for simplifying conventional finan- 
cial statements have advanced gradually. Among 
the earliest improvements, now in common use, 
are: 

1. Captions for each class of items in the finan- 
cial statements. For example, all current assets 
are grouped under the heading "Current Assets." 

2. Footnotes. Items requiring further expla- 
nations are marked with an asterisk or superior 
figure. The star or figure is repeated at the foot 
of the statement with the explanation. 

3. Notes or comments. An item in the finan- 
cial statement that requires clarification is fol- 
lowed by " (note 1) ," or whatever the appropriate 
number is. Immediately following the statement 
is a page or two of notes correspondingly num- 
bered. The note method is also used for general 
comments on the financial statement as a whole. 
For example, a note might explain whether there 
have been any changes in the handling of the ac- 
counts that would affect comparison of the items 
with previous years. 

Some companies avoid footnotes and other 
notes in their annual reports to stockholders in 
recognition of the modern insistence upon simpli- 
fication in corporate reporting. They accomplish 
this by including in the text of the report full ex- 
planations of all conditions and transactions that 
merit explanations. 

4. Schedules or tables. In order to keep the 
financial statements from becoming bulky, mud- 
dled and complicated, details are given in sched- 
ules or tables. The following is a list of such 
schedules: 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



Income-Statement 

Balance-Sheet Schedules Schedules 

Property account. Depreciation, renewal, 

maintenance. 

Securities owned. Nonoperating income. 

Investments and ad- Other charges and cred- 
vances (affiliated com- its. 
panies) . 

Funds in the hands of 
trustees. 

Inventories. 

Deferred charges. 

Depletion, depreciation, 
amortization and cur- 
rent maintenance re- 
serves. 

Funded debt. 

Capital stock. 

Contingent liabilities. 

ADVANCED METHODS OF 
SIMPLIFYING FINANCIAL STATEMENTS 

The aim of simplification is to make the items and 
figures shown in the balance sheet and income 
statement meaningful to the reader. In other 
parts of this book, the techniques for interpret- 
ing the various parts of the financial statements 
through the narrative, charts, maps, statistical 
tables, comparisons, ratios and other illustrations, 
have been considered. Here we are concerned 
only with the ways in which the balance sheet and 
income statements, as such, have been made more 
intelligible to persons with no accounting back- 
ground. 

If a stock exchange has something to say about 
the company's form of financial statements, it is 
wise to discuss any radical changes from the con- 
ventional form in advance with the exchange. If 
the corporation plans to present a simplified form 
of balance sheet or income statement in addition 
to the usual accountant's forms, no such prelimi- 
nary discussion is necessary. 

WHAT IS HARD TO UNDERSTAND 
ABOUT A BALANCE SHEET? 

To the untrained reader of financial statements, 
the balance sheet has these perplexing features: 
1 . Liabilities always equal assets. The reader 
does not see in the balance sheet the equation: As- 
sets equal Liabilities plus Capital. He cannot 
differentiate between proprietorship items and the 



liabilities. Hence, he thinks everything on the 
right hand side is a liability. If the liabilities 
equal the assets, how does the company continue 
in business, he ponders. 

2. The mathematical exactness of the totals in 
the two sides makes him feel there is something 
tricky about the set-up. 

3. Certain terms that have a technical mean- 
ing to accountants have a different meaning in 
every-day use. The difference leads to misunder- 
standing. For example, capital, in the average 
reader's mind, is something owned. Why then 
does it appear with the liabilities? Reserves are 
things held back, set apart, or saved for future use, 
he figures. Isn't that something the company 
owns? Why are they placed with what the com- 
pany owes? To his mind, surplus is an extra 
quantity left over. Then why isn't it with the as- 
sets? That item must have been put there to bal- 
ance the scales, he ouesses. See items 5, 9, 10, 
page 178. 

4. Other accounting terms are utterly devoid 
of meaning to many readers — for example, de- 
ferred charges, deferred credits, accruals, capital 
surplus, earned surplus. 

Efforts to simplify the balance sheet are aimed 
principally at eliminating these difficulties. 

WAYS OF SIMPLIFYING 
THE BALANCE SHEET 

Some of the simplification methods described here 
may be applied to the conventional balance sheet, 
others so materially change the accountant's form 
that it is advisable to give both the simplified form 
and the conventional form. In that case, a note 
should be included referring the reader from one 
form to the other. The methods of simplifying 
the balance sheet, listed below, are illustrated in 
the specimen, simplified balance sheets repro- 
duced at pages 183 et seq. 

1. Tell the reader what a balance sheet is, if 
that title is used. See, for example, statement at 
page 184 and excerpt at page 119. 

2. Use a title that is more understandable to 
the layman than "Balance Sheet." For example, 
"Statement of Financial Position," "Financial Po- 
sition at the End of the Year," "Statement of 
Financial Condition," "How We Stood on De- 
cember 31, 19 — ." 

3. Present the balance sheet in a single-column 
form, bringing out the equation: Assets minus 
Liabilities equals Stockholders Equity. In other 

177 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



words, show the liabilities as a deduction from 
the assets. This set-up helps to bring out more 
clearly for the lay reader that the difference be- 
tween the assets and liabilities is the "net assets," 
"net corporate investment" or "net worth" 1 of 
the company. It enables the reader to see that 
"net assets" or "net worth" is the same as the 
"stockholders' equity." Another advantage of 
the single-column arrangement is that there is no 
necessity for showing a balancing of assets against 
liabilities plus stockholders equity. A balance 
may be shown between net assets and the pro- 
prietorship part of the statement. 

4. Identify the assets as things owned by the 
business and the liabilities as amounts owed. 

5. Distinguish between the amounts owed and 
the items that represent stockholders' equity. 
Use such new names as the following for the tradi- 
tional "Capital Stock" section: "Evidenced by," 
"Ownership evidenced by," "Represented by," 
"Derived from," "Sources from which the above 
net assets were obtained," "Shareholders' Owner- 
ship." 

6. Use round numbers, omitting all cents. 

7. Include an explanatory statement in every- 
day language for each item that is not absolutely 
clear from its terminology. Here are two illus- 
trations. The first tells what is included in the 
term "Property"; the second explains "current 
assets" and tells what "cash" includes. Where 
this method is used, it is possible to omit entirely 
the usual accounting terminology, as is done in 
some of the examples at pages 184 et seq. 

Real Estate and Plants, Raw Sugar Properties, Warehouses, Coop- 
erage, Railroads, Tank Cars, Steamships, Coal Barges, Wharves 
and Garages, with their machinery, equipment, etc., and tim- 
ber and other lands owned in fee or through ownership of the 
entire capital stock of constituent companies, at cost less depre- 
ciation $80,571,809.70 

CURRENT ASSETS: 

This group comprises cash and items which in 
the ordinary course of business are convertible 
into cash in time to meet maturing obligations. 



1 The term "net worth" for the difference between assets and 
liabilities is fading from use, "net corporate investment" has ap- 
peared as a substitute. Nevertheless, some modernized balance 
sheets still use the term "net worth" in spite of the fact that a 
balance sheet "does not purport to reflect and could not use- 
fully reflect the value of the enterprise or of the equity interests 
therein." (Accounting Research Bulletins, No. 12, American 
Institute of Accountants, Reports of Committee on Terminol- 
ogy. This committee has issued several reports that have been 
published as accounting research bulletins. Anyone concerned 
with reforming current practices of reporting financial informa- 
tion would do well to look at these bulletins.) 

178 



Cash $ 566,483.22 

This item represents money on deposit in 
banks, in transit, and on hand in the com- 
panies' offices. 

8. If the term "deferred charges" is used, ex- 
plain it as amounts paid in advance, with such 
terminology as: "Costs Allocable to Future Op- 
erations" (see page 183) , "Costs Applicable to 
Future Periods," "Charges Applicable to Future 
Operations." It is acceptable to omit the words 
"deferred charges" entirely and merely to include 
the items, explaining them as prepaid items. Do 
not use the word "accrued" without an explana- 
tion. 

9. Avoid the use of the word "reserve." In 
the accounts receivable item, merely say "receiv- 
ables less estimated bad debts." Notice how the 
figures for "Property, plant and equipment" are 
explained in the balance sheet on page 184, to 
take care of the depreciation reserve. 

10. Do not use the words "surplus," "capi- 
tal surplus," "earned surplus" or other technical 
surplus account names. Replace "surplus" with 
such expressions as: "Profits employed in the busi- 
ness," "Earnings reinvested," "Income accumu- 
lated and retained in the enterprise," "Earnings 
accumulated since inception of the company re- 
tained and invested for the conduct of the busi- 
ness," "Income from operations retained and used 
in the business," "Income reinvested in the busi- 
ness" or some similar expression. See page 182 
for Caterpillar Tractor Co.'s thoughts on finding 
a substitute for surplus. 

11. Give some indication that the assets are 
not all valued in the same way, that the valuations 
do not all represent realizable values. This can 
be accomplished by showing how the assets have 
been valued. See page 183. 

12. Try graphics to convey the "balancing" 
idea. Show the net assets in which capital is in- 
vested as balancing with the owners' investment 
in the business. 

CATERPILLAR TRACTOR CO. 
SIMPLIFIED BALANCE SHEET 

The simplified form of balance sheet used by 
the Caterpillar Tractor Co. is reproduced at page 
183. In an article in the Journal of Accountancy, 
March 1947, entitled "Financial Statements for 
Corporate Annual Reports," W. Blackie explains 
the thinking behind Caterpillar's simplified forms. 
Some of the Company's ideas are referred to at 
page 182. 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



The Caterpillar form of balance sheet is a 
single-column set-up. The title "Balance Sheet" 
is not used. Instead, the title is merely "Finan- 
cial Position." Mr. Blackie says that Caterpillar 
Tractor Co. chose not to use "Condition" because 
it conveyed ideas of realizable value and, possi- 
bly, liquidation. It chose "position" instead. 

The balance sheet starts with the current assets. 
It is followed immediately by the current liabili- 
ties. These are subtracted from the current as- 
sets. The difference is the net current assets, and 
they are explained in a separate statement. Then 
come the so-called deferred charsres, described in 
this balance sheet as "cost allocable to future op- 
erations." This is followed by the fixed assets 
and the intangibles, such as patents and trade- 
marks. These are added to the net current as- 
sets, and the resulting figure is just a total. The 
long-term debt is then deducted to arrive at the 
"net assets" in which capital was invested on 
the day of the statement. 

The "net assets" figure is followed with the 
words "Derived from." Under this heading just 
two items appear, each of which is explained in a 
separate statement: Capital stock, and profit em- 
ployed in the business. 

When the balance sheet is constructed in this 
way, the mathematical exactness between the net 
assets and the total of the stockholders' equity is 
no puzzle to the lay reader. The form of balance 
sheet described here was used by Caterpillar Trac- 
tor Company in its 1946 annual report. It com- 
pletely replaces the conventional balance sheet 
and avoids the presentation of two forms of state- 
ments — the conventional and the simplified. 



WHAT IS CONFUSING ABOUT A 
CONVENTIONAL INCOME STATEMENT 

It is fair to assume that some readers of the income 
statement harbor the false notion that corporate 
income is like their personal income — money that 
can be spent. With such an erroneous concept of 
income in mind, they may well conclude that all 
of the corporate income can be distributed with- 
out hurting the business. Neither simplification 
of form nor substitution of words in the income 
statement will eliminate such misunderstanding. 
Education through the narrative portion of the 
annual report may help. That was evidently the 
thought in the minds of Simmons Company ex- 
ecutives when they included in one of their an- 



nual reports a paragraph explaining that "Earn- 
ings Are Not Idle Cash" (see page 94). 

In the conventional income statement itself, the 
following; characteristics retard reader interest and 
understanding: 

1. There are too many groups of items, each 
with its own sub-total, involving separate deduc- 
tions from preceding sub-totals. See item 2, page 
180. 

2. The greater the number of sub-totals, the 
more times the word "profits" appears in the state- 
ment. It is confusing to a lay reader to find 
"gross profit on sales," "net profit on sales," "net 
profit on operations," and "net income" all in the 
same statement. Small wonder that the public 
thinks business makes much more profit than it 
does! See item 2, page 180. 

3. The successive deductions of classes of ex- 
penses — selling, general and financial — give the 
erroneous impression that certain classes of ex- 
penses have a prior claim against revenues. See 
item 2, page 180. 

4. The exact significance of the income ac- 
count's first and largest item — sales — escapes the 
reader who has little or limited business back- 
ground. Does the amount captioned "Sales" rep- 
resent the total value of the orders received by the 
company during the year? Or does the sum rep- 
resent payments received from customers during 
that period? 

5. In those instances where the published in- 
come statement shows how cost of goods sold were 
arrived at (and too few statements do), the han- 
dling of the inventory item may give trouble. See 
item 6, page 180. 

6. The vast majority of people do not grasp 
the real meaning of the word "depreciation." See 
item 7, page 180. They are especially perplexed 
when they find "reserve for depreciation" men- 
tioned in the balance sheet and not in the income 
statement. 

7. If the income statement contains a separate 
group of items that the accountants seem to have 
tacked on after they got through showing the re- 
sults of regular operations, the reader is unable to 
understand their significance. We refer here, of 
course, to the nonoperating, extraneous and non- 
recurring gains and losses, and to the corrections 
of operating profits or losses of prior periods. 2 
See item 8, page 180. 



2 Among the nonoperating, extraneous and nonrecurring gains 
are such items as: Gain on the disposal of a factory, profit on 

179 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



WAYS OF SIMPLIFYING 
THE INCOME STATEMENT 

The methods of simplifying the income statement, 
listed below, are illustrated in the specimen, sim- 
plified income statements reproduced at pages 
188 et seq. 

1. Give the statement an expository title. 
Such titles as "Our Operating Record in 19 — ," 
"Results of Operations," "Income and Expenses 
in 19 — ," "Summary of Income," "Statement of 
Net Income," "Statement of Income and Ex- 
penses," "Statement of Operations" have been 
used frequently. The title "Profit and Loss State- 
ment" is not recommended; the statement cannot 
be one of profit and loss at the same time. 

2. Use a short-form income statement that 
eliminates all but two groups of items: One to 
show income items and their total, and another 
to show the costs. The difference is the profit for 
the period. The functional operating report de- 
scribed below is a short-form statement. 

3. Include an explanatory statement of every 
item in every-day language. 

4. Tell in simple language what happened to 
the net profits of the year — what part was distrib- 
uted to the stockholders as dividends, what part 
was retained in the business. Such terminology 
as the following may be used to describe the 
amount remaining after dividends: "Amount re- 
tained in enterprise," "Income retained in busi- 
ness," "Earnings of this year reinvested in the 
business," "Net amount carried to earned sur- 
plus," "Carried forward for future needs." 

5. Clarify the meaning of the sales figure. 

6. If cost of goods sold is set forth, show the 
opening inventory as an addition to purchases and 
the closing inventory as a deduction from costs. 
This will be much more intelligible than adding 
a decrease in inventory or subtracting an increase 
in inventory. 

7. Eliminate the word "depreciation" and sub- 
stitute some such explanation as: "Charges to 



the sale of investments, amounts collected in a successful 
lawsuit. Among extraneous, nonrecurring losses are: Losses re- 
sulting from storms or other catastrophes not covered by insur- 
ance, losses resulting from sales of fixed assets or investments. 
Corrections of operating profits or losses of prior periods in- 
clude, for example, correction of profit of a previous year due 
to an undervaluation of inventory in that year. These items 
are usually clearly distinguished from the operating profits and 
losses for the year. In most instances they are shown separately 
in the statement of surplus. 

180 



cover the wearing out of tools and buildings," 
"Portions of cost of buildings, machinery and 
equipment allocated to operations (deprecia- 
tion) ," "Wear and exhaustion of plants and 
equipment," "Wear and exhaustion of facilities." 
If the word "depreciation" is used, explain it. 
See page 189 for example. See also the discussion 
of this suggestion at page 182. 

8. If a combined statement of profit-and-loss 
and surplus is used and items of extraordinary and 
nonrecurring charges and credits as well as cor- 
rections of operating profits and losses of prior 
periods are shown, these items should be omitted 
in an additional, simplified statement. Their ef- 
fect, of course, will be shown in the item "profit 
employed in the business (at the end of the year) ."' 

THE USUAL SHORT FORM 
INCOME STATEMENT 

The most common short-form or simplified in- 
come statement has three captions: (1) What the 
company received, (2) what the company spent, 
(3) what the company earned. It is sometimes 
referred to as a single-step statement, because all 
of the deductions from income are taken in one 
step rather than in groups, as in the conventional 
income statement. The three-caption form has 
found ready acceptance because: (1) It eliminates 
possible misunderstanding of profits by using the 
word "profit" or "income" only once in the state- 
ment, and then with the meaning of net income, 
(2) it suggests that there is no ranking of costs or 
priority of expense deductions, (3) it educates the 
reader to know that all costs must be recovered 
before there is profit, (4) it is easily understood, 
and therefore believed, by the casual reader. 

This single-step statement has taken the place 
of the conventional income statement in many 
reports, even in instances where the conventional 
two-column set-up of the balance sheet is still be- 
ing used. As long as receipts are large enough 
to take care of all expenses and leave a balance 
for the stockholders, there would seem to be no 
particular disadvantage to totaling all expenses 
and deducting this total from receipts. However, 
when the company falls on leaner years, the pri- 
ority of payment may assume greater importance. 
Also, though the single-step income account might 
be adequate for the lay reader, the financial ana- 
lyst will often be interested in the balance after 
each deduction, in order to compute various in- 
come-account ratios and interest-and-dividend cov- 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



erage and to estimate the effect of future growth 
or shrinkage of sales on net profit. For this rea- 
son, many companies include the conventional 
form of income statement along with the simpli- 
fied form. 

THE FUNCTIONAL 
OPERATING REPORT 

The functional operating report or short-form in- 
come statement recommended by the American 
Economic Foundation 3 has but two captions: (1) 
What the company received, (2) what the com- 
pany spent. Profits are regarded as a cost of using 
the tools furnished by the stockholders' invest- 
ment and are included with the other costs of do- 
ing business. The following form of simplified 
operating statement used by the Vanadium- Alloys 
Steel Co., closely follows the functional operating 
report recommended by the American Economic 
Foundation. 

Simplified Operating Statement 

Per 
Total Worker 

Received from Customers for Goods and 

Services $ $ 

These Receipts Were Expended for the 
Following: 

Cost of Goods and Services Bought from 

Others $ $ 

Cost of Payments Ordered by Government 
(Taxes) 

Cost of Human Energy (Wages and Sal- 
aries) 

Cost of Tools Wearing Out (Depreciation 
and Depletion) 

Cost of Using the Tools (Profit) 

Total $ $ 

Tools in Use by Company Workers .... 
Ratio of Profit to Tools 

Those who advocate the use of this functional 
operating report see in it these advantages in addi- 
tion to those given above for the three-caption 
short form: 

1 . By identifying profits as a "cost of using the 
tools," the reader is better able to see the place of 
the tools (stockholders' investment) in the operat- 
ing picture. In other words, the function of prof- 
its is explained. Profits no longer appear as a 
residue after all costs have been met, but as a nec- 

3 See The Functional Operating Report — -The New Form of 
Social Accounting for Use in Public and Employee Relations, 
by Robert R. Doane and Joseph E. Canning, published by The 
American Economic Foundation, 295 Madison Avenue, New 
York 17, N. Y., 22 pages, $1.00. 



essary cost. The form implies that if the cost is 
not met, the providers of the tools will withdraw 
them. When profits are not included in the costs, 
the form implies that the providers of the tools 
will continue to make them available whether or 
not there are profits. Both implications are sub- 
ject to criticism. 

2. The nomenclature of the report empha- 
sizes several basic economic truths in the opera- 
tion of the private enterprise system. For ex- 
ample: That the customer is the boss, that the 
customer really pays the corporation's taxes, that 
stockholders have actually participated in the 
year's operations by furnishing the tools and are 
entitled to payment for this contribution. 

The following criticisms may be made of the 
functional operating report: 

1. It is too condensed to satisfy the demands 
of labor. 

2. It is incorrect to include profits as a cost or 
expenditure, as though it were an unavoidable 
charge. 

3. Using the expressions "cost of tools wearing 
out" for "depreciation," and "cost of using the 
tools" for "profit," may give the impression that 
the tools are being paid for twice. 

4. It gives the impression that the profits are 
entirely available for distribution to the stock- 
holders and fails to show the amount reinvested 
in the business or set aside for future growth. 

Proponents of the functional operating report 
answer these objections by saying that the report 
contains an explanation of each of the items in 
the simplified form. 



OTHER WAYS OF MAKING FINANCIAL 
STATEMENTS UNDERSTANDABLE 

The previous ideas suggested for helping the 
reader understand the financial statements, dealt 
with the language and arrangement of the bal- 
ance sheet and the income statement. The fol- 
lowing ideas deal with the figures and suggest ways 
of making them more comprehensible. 

1. Reduce every figure in the balance sheet to a 
per-share-of-stock basis for the current year 
and the previous year. 

2. Reduce every figure on the asset side of the 
balance sheet to a per-worker basis. Do the 
same for the items in the income statement. 
For examples, see pages 184 and 188. 

181 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



3. Include comparative figures and analytical 
percentages. This subject is discussed at page 
33. 

4. Give ratios that are useful in analyzing finan- 
cial statements lor credit and investment pur- 
poses. See page 35. 

5. Reduce every figure in the simplified income 
statement to an average amount for each em- 
ployee-week worked. See page 207. 

6. Reduce every figure in the simplified income 
statement to a "Per $100 of Sales" figure or 
a "cents per dollar of sales" figure. For ex- 
ample, see page 188. 

7. Make figures comprehensible by reducing 
them arbitrarily to a "little company" size. 
See page 268. 

AVOIDING THE 
WORD "SURPLUS" 

The following paragraph from the Blackie article 4 
shows how much thought went into the choice of 
a substitute for "surplus" when Caterpillar Trac- 
tor Co. eliminated that word from its balance 
sheet. 

For our purpose, the term "surplus" — even if 
"earned" — was, of course, thoroughly objectionable. 
As far as possible we intended to use words in their 
popular everyday meaning, and, despite its special ac- 
counting connotation to the initiated few, "surplus" 
inevitably conveyed to the general leader the idea of 
too much, more than enough, a lot of corn in a lot of 
bins, left-over war materiel. In search for a substitu- 
tion, thoughts naturally turned to such alternatives 
as "undistributed profits" and "profit invested in the 
business". "Undistributed", however, seemed to con- 
vey an idea that maybe the profits would be distrib- 
uted — when, of course, they could not be; and "in- 
vested" seemed to create a possible question related 
to the purchase or other acquisition of capital stock 
— a common implication of the term. "Reinvested" 
we rejected since it seemed merely to compound the 
trouble with "invested" by raising a time element. 
"Kept" had perhaps only the disadvantage that it was 
too crudely simple; "left" had a strong appeal; and 
"held" seemed to be more acceptable when it was 
spelled "retained". So we used "retained" — until we 
encountered sufficient objections from our "relations" 
people who thought that the term failed to connote 
the "putting to use" inferred by "invested". So we 
changed to "employed". 

4 "Financial StatemenLs for Corporate Annual Reports," by 
W. Blackie, Journal of Accountancy, March 1947, p. 198. 

182 



Where "surplus" is used, an explanation may 
be helpful. For examples, see page 200. 

AVOIDING "DEPRECIATION" AND 
"RESERVE FOR DEPRECIATION" 

In eliminating the words "depreciation" and "re- 
serve for depreciation" from its financial state- 
ments, Caterpillar Tractor's executives called the 
annual depreciation charge "portion of cost (of 
facilities) allocated to operations" for the year 
and the reserve "portion of cost allocated to op- 
erations to date." (See forms at pages 189 and 
108.) The same terminology was carried out in 
the schedule of land, buildings, machinery and 
equipment (see page 108) . In the balance sheet 
(page 183) , the property account reads: 

Land, buildings, machinery and equipment — cost 
not allocated to operations (statement 6). 

In the income statement, the deduction for de- 
preciation is labeled: 

Portion of cost of buildings, machinery and equip- 
ment allocated to operations (depreciation). 

According to those who decided upon the sub- 
stitution, depreciation in the colloquial sense re- 
lates to lessening of values without regard to the 
cause of loss. In the accounting sense, deprecia- 
tion is not a valuation process, but one of alloca- 
tion. The method of computing depreciation 
used by accountants generally does not attempt 
to measure changes in value or degrees of physi- 
cal exhaustion within an accounting period. It 
merely distributes the cost of the applicable facili- 
ties over their estimated service-life. The alloca- 
tion terminology avoids terms that give trouble 
to the average reader, and better describes what 
has taken place. 

THE TREATMENT OF TAXES 

The income statements included in many annual 
reports show the reader the company's net income 
before Federal taxes; that is, taxes are not in- 
cluded in the list of expenses but are shown as 
something coming out of profits. Those who are 
opposed to this treatment, reason: (1) It is con- 
tradictory to speak of profits before income taxes, 
because such taxes are as much a cost of doing 
business as any other expense, (2) it gives the er- 
roneous impression that if taxes were lower, prof- 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



its would necessarily be higher — they might and 
they might not, (3) it fails to recognize that Fed- 
eral taxes are. in one way or another, taken into 
account in determining prices of the product sold 
and hence are passed on, (4) it implies that gov- 
ernment is sharing the profits, although taxes are 
not a distribution of profits to the government, 
since the government is not an equity holder. 

These arguments are convincing. Taxes should 
be shown as a cost of doing- business. 

SIMPLIFIED 

FINANCIAL STATEMENTS 

A number of simplified balance sheets and income 
statements are given in the following pages. In 
all instances but one, the simplified forms were in 



addition to conventional statements. In the case 
of the Caterpillar Tractor Co., the conventional 
forms were modified and the statements (repro- 
duced below and at page 189) , supplemented by 
various explanatory statements, were certified by 
the public accountants. 5 

The forms are presented for the ideas they con- 
tain, rather than as models. Figures and notes 
have been omitted to emphasize the simplification 
features. Additional ideas for presenting the in- 
come statement to employees are given at pages 
267 et seq. 



5 See "Trends in Accounting Terminology and Form Revealed 
by 194(5 Corporate Reports," by Aubrey Williams, Journal of 
Accountancy, October 1947, p. 300, for a review of innovations 
in certified financial statements. 



SIMPLIFIED BALANCE SHEETS 



[Caterpillar Tractor Co. (a California Corporation)] 

FINANCIAL POSITION DECEMBER 31, 19— 
Current Assets: 

Stated on basis of realizable values: 

Cash $ 

United States Treasury Notes — Tax Series C 

Receivables, less estimated bad debts 



Statement 2 



Stated on basis of cost or market, whichever lower: 
Inventories 



Deduct: Current Liabilities: 

Payables 

Federal income tax 

Deduct: United States Treasury Notes — Tax Series C 



Net Current Assets (Statement 5) 

Insurance, Taxes, Etc. — Cost Allocable to Future Operations 

Land, Buildings, Machinery and Equipment — Cost Not Allocated to Operations (Statement 6) 
Patents, Trade-marks and Other Intangibles — Stated at Nominal Amount 



Deduct: Ten-year 2% Debentures Due 1956 
Net Assets 



Derived from: 

Capital stock, common — stated capital (statement 7) 
Profit employed in the business (statement 7) 



Capital Stock 



Number of Shares 
Authorized Issued 



Preferred: five per cent cumulative — par value $100 per share 
Common: without nominal or par value 



183 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



(The Borden Company] 



HOW WE STOOD ON DECEMBER 31, 19— 



The Balance Sheet at the end of the year is a statement which shows what is Owned and what is Owed, — the difference representing 
Net Worth. This statement is shown below in a descriptive manner. The values have been divided by the average number of em- 
ployees (26,820) to show the investment per employee. 

Investment Per 
We Owned (Assets) Employee 

Cash — In banks and on hand available to pay for milk and other products, payroll, supplies, 
freight and other services. The funds on hand are only sufficient for about one month's 
average operation $ S 

Marketable Securities — Chiefly United States and Canadian Government bonds, some o' which 
are on deposit with various governmental authorities to guarantee compliance with iheir 
milk control laws, workmen's compensation acts, etc 

Receivables — Money to be received by us from customers and others. This represents about 
1 7 days' sales, most of which was collected in January 

Inventories — Stocks of finished goods, goods in process, raw materials and supplies in plants 
and warehouses 

Miscellaneous Assets — Consisting principally of investments in, and advances to, foreign af- 
filiated companies, mortgages received from sales of properties, and loans to farmers to pur- 
chase cattle 

Property, Plant and Equipment — Plants in which our employees work; also machinery, process- 
ing and delivery equipment, fixtures, etc., used in our operations; after deducting the allow- 
ance for accumulated wear and tear to date (which is the depreciation reserve) 

Prepaid Items and Deferred Charges — Prepaid taxes, rents, insurance, etc., and the excess of 
cost over par value of stock acquired and held in the treasury for subsequent corporate use 

Trade-marks, Patents and Good-will — For which the Company expended millions in advertis- 
ing and research. For conservative purposes this is carried at a nominal amount 

Total of what we owned (Assets) $ $ 

We Owed (Liabilities) 

Current Liabilities — Including bills for milk, materials, supplies and services 
purchased, principally in December, but not due for payment until Janu- 
ary. This also includes provision for commissions and payrolls for the 
last part of the month and items on which bills have not been rendered, 
such as taxes exclusive of U. S. Income Taxes which have been provided 
for by our holdings of Treasury Savings Notes, and other miscellaneous 
expenses, as well as maturities of serial notes due in 19 — in the amount 
of $ $ 

Non-current Liabilities — Represents liabilities not payable within the next 

twelve months. Notes payable after 19 — in the amount of $ is 

the principal item herein 

Total of what we owed (Liabilities) $ 

Net Worth (Stockholders' Funds and Reserves) 

Represented by: 

Reserves — For contingencies that may arise and for other operating 

purposes S 

Capital Stock and Surplus — Being the stockholders' investment in the 
company and that part of past earnings retained in the business to 
strengthen the Company's financial condition 

Total net worth (Stockholders' funds and reserves) $ 



184 



i 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[The Murray Corporation of America] 

Usually a corporation's balance sheet is presented in a formal manner which may be hard to understand if one is not familiar 

with accounting. The formal balance sheet of The Murray Corporation of America as of , 19 — , may be more easily understood 

if presented this way: 

Cash $ 

Our customers and others owe us (Accounts Receivable) 

Steel, materials and supplies to be sold as product (Inventories) 

Current expenses paid for in advance (Insurance, taxes, etc.) 

$ 
Out of this must come: 

What we owe for the steel, materials, supplies, expenses and taxes $ 

Due to employees for wages 

This difference — the money used to run the business is "Working Capital" $ 

Besides Working Capital we have these assets: 

Buildings, machinery and equipment $ 

Miscellaneous other assets including investments and goodwill 

Balance — Interest of 9,300 Stockholders $ 






[Erie Railroad Company] 



FINANCIAL POSITION AT THE END OF THE YEAR 



The Company had investments in land, railroad tracks, terminal facilities, 
shops, locomotives, freight and passenger cars and other fixed prop- 
erty, less depreciation and amortization accrued of 

In addition the Company had investments in capital funds and in stocks 
and bonds of and advances to affiliated and other companies and 
United States Treasury Securities carried at 

Total Investments 

The Company had cash working capital of 

Other railroad companies and others owed the Company 

The Company had on hand fuel, rails, ties, bridge material and other 

supplies necessary for keeping road and equipment in good repair . . 
Deferred assets and unadjusted debits, including items owed but not yet 

available to Company 

The Assets of the Company totaled 

The Company owed for materials and supplies, wages and balances to 
other railroad companies, and interest and rents accrued but not yet due 

Taxes accrued but not due 

Deferred liabilities and reserves, including items due to others not yet 
adj usted 

The total of these liabilities, credits and reserves was 

After deducting these items from the total assets there remained available 

for the capitalization of the Company net assets of 

The capitalization of the Company consisted of the following: 

Funded Debt, including bonds, equipment obligations, etc 

Preferred Stock (including stock authorized under Plan but not 

issued) 

Common Stock (including stock authorized under Plan but not 
issued) 

Making a total capitalization of 

After deducting this capitalization from net assets there remained a sur- 
plus of 



On 


On 




December 


December 


Increase or 


31, 19— 


31, 19— 


Decrease 



185 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



Left-hand page of two-page spread; see right-hand page below. 



(Electric Boat Company] 


HOW THE COMPANY STOOD FINANCIALLY AT 
Balance Sheet in Simplified and Explanatory Form 




The Company Owned 


Explanation 19 — 


19— 


CASH — In banks and on hand 


Available for use in meeting payrolls, current bills for mate- $ 
rials and other usual business expenses. 


$ 


U. S. Government bonds and 


Instead of carrying unnecessarily large cash balances in the 




notes 


banks, the Company invests some of its liquid funds in gov- 
ernment securities. 




Salable securities 


Miscellaneous stocks and bonds which were sold in 19 — . 




Amounts owed by the United 


(a) Amounts owed to us principally for products delivered 




States Government 


to or work done for the U. S. Navy, 
(b) Estimated net refund of Excess Profits taxes paid for the 
year 19—. 




Various amounts owed by 


We did some subcontracting work for, and sold products to 




others 


private concerns. Such bills are usually paid promptly by 
the customers. 




Materials on hand and partly 


Raw materials and supplies in plants and warehouses and un 




Finished work 


finished products including money paid for labor. It is ex- 
pected that a large part of this 19 — inventory will be usei 
in products to be delivered and paid for in 19 — . 




Amounts the company has 


These are amounts paid in advance, such as premiums for fire 




paid in advance 


insurance, etc., on unexpired policies. $ . of the 19 — 

amount is for past service premiums paid in full on the Com- 
pany's Retirement Annuity Plan. 




Investment in Canadair Limited 


This is the original investment made in 19 — in the stock of 
the Company's new Canadian aircraft subsidiary. 




Miscellaneous 


Miscellaneous investments representing carry over items. 
They were written off in 19 — . 




Land, buildings, machinery 


The Company's plants and equipment, less an allowance for 




and equipment 


accumulated wear and tear (which allowance is the "Depre- 
ciation and Amortization Reserve" of $ . at the end of 

19-). 




Patents, trademarks and 


The Company has spent millions in research, development 




goodwill 


and advertising in the past forty-six years, but this is carried 




Total Owned 


at a nominal amount. 




S 


$ 







Right-hand page of two-page spread; see left-hand page above. 



[Electric Boat Company] 



The Company Owed 
Current bills for materials and 

supplies 
Current wages and salaries not 

paid as at the year end 

Federal income and other 
taxes 

Dividend on Preferred stock 

Amounts paid in advance for 
partly finished work 



Total Owed 



186 



THE END OF 19— 



COMPARED WITH 19— 



Balance Sheet in Simplified and Explanatory Form 

Explanation 
The Company owed its material and service suppliers these 
amounts over the year end on current bills. 
The Company owed its employees for their services unpaid 
over the year end. These amounts were current and were 
paid sometime in the following month. 
These amounts cover Federal, State and local taxes which 
must be paid by the Company, in the case of 19 — taxes, 
during 19 — . 

This dividend was declared in December and paid on Janu- 
ary 10, 19—. 

Customers pay the Company on account from time to time 
on partly completed products. The Company's debt is dis- 
charged when the goods are delivered. 



[Continued on next page] 



19— 



19— 






MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[Continuation of right-hand page of two-page spread] 



Remaining for Stockholders 
Amounts set aside for "post- 
war" and contingencies 



The stockholders' investment 



Past earnings saved 



Most of the 1 9 — amount represented an estimate of the pos- 
sible cost of post-war readjustments to peace-time activities. 
The Company completed most of its readjustments in 19 — 

and charged the whole cost to earnings,- therefore $ . has 

been transferred to "Past Earnings Saved" below. Because 
of some continuing uncertainties, the balance of $ . re- 
mains for unforeseen possible losses. 

This arbitrary amount represents the "par value" of the Com- 
mon stock (at $3.00 per share) plus the "stated value" of the 
Preferred stock (at $50.00 per share) of the stockholders' in- 
vestment. "Par Value" and "Stated Value" are legal terms 
which sometimes are indicative of the amount of the original 
capital. 

This sum represents a large part of the funds used in meeting 
the day to day working needs, such as payrolls and buying 
materials. It also must stand losses during periods of bad 
business; and the meeting of emergencies. 



Total "Book Vilue" Remaining for Stockholders 



[Allis-Chalmers Manufacturing Co.] 

A-C Owns 

(Assets) 

CONSOLIDATED BALANCE SHEET SIMPLIFIED A-C Owes 

as of December 31, 19— (Liabilities) 

Net Worth 

(Stockholders' Equity) 
ASSETS 

Cash 

U. S. Government securities 

Notes and accounts receivable — less reserve 

Inventories 

Estimated refund of federal taxes 

Properties and machinery — less reserve 

Other assets 

'Total Assets 

LIABILITIES 

We owe for materials and wages 

We owe for taxes and renegotiation 

We reserve for inventory, and other contingencies 

We owe for money borrowed 

Total Liabilities 

STOCKHOLDERS' EQUITY 

Capital stock outstanding 

Earned surplus 

Total Stockholders' Equity 



187 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[Servel, Inc.] 



SIMPLE EXPLANATION OF SERVEL'S BALANCE SHEET 
As of October 31, 19— 



THIS IS THE CAPITAL WE WORK WITH 

Cash in banks S 

Invested in Government Securities 

Due from customers for our products 

Due from terminated war contracts 

Inventories of materials and products for sale to customers 

In terms of cash, the above amounts to 

AGAINST THE ABOVE WE OWE 

For materials $ 

For salaries and wages 

For taxes 

For dividends 

For other expenses 

THE NET DAY-TO-DAY ASSETS USED IN THE BUSINESS ARE ... 

HERE ARE THE TOOLS WE WORK WITH 

Real Estate, buildings, machines of various types and other kinds of equip- 
ment $ 

Less: Reserve for depreciation 

Patents, contract rights and goodwill carried on the books at a nominal 

amount 

Other miscellaneous assets 

THESE ARE THE ASSETS USED TO PROVIDE JOBS FOR SERVEL 
WORKERS 

AGAINST THE FOREGOING, THE ADDITIONAL AMOUNTS WE 
OWE ARE AS FOLLOWS: 
Reserve for warranty service to users of our products, etc 

IN TERMS OF MONEY, THIS IS THE NET INVESTMENT OF STOCK- 
HOLDERS WHO ARE THE OWNERS OF 1,726,926 SHARES OF 
COMMON STOCK AND 60,000 SHARES OF PREFERRED STOCK 

* 5,908 average employment during 19- 



Average per 
Employee* 



SIMPLIFIED INCOME STATEMENTS 



[The Borden Company] 



THE RESULTS OF 19— OPERATIONS 



The Statement of Net Income, sometimes referred to as the Profit and Loss Statement, shows the results for the full year's operations. 
In the following tabulation this is shown in relation to each dollar of sales and covers all products and all markets. 

Cents Per 
Dollar of Sales 
RECEIPTS: 

Sales — Amount charged our customers for products sold $ 100. i 

Other Income — Including rentals, royalties and interest and after deducting 
interest expense 



Total 



[Continued on next page] 



188 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[The Borden Company — Continued] 

DISPOSITION: 

To Farmers — Paid for milk, cream, butter, cheese, and other products .... 

Payroll — Wages and salaries paid to employees 

Taxes — To Federal, State, local and Canadian governments 

(.This amount for taxes is more than twice as much as the remaining Net 

Income for the year) 

Total to Farmers and for Payroll and Taxes 

* This — e is the average for all operations including evaporated milk, 
dry milk, ice cream, and many other products as well as fluid milk. 
In divisions conducting a fluid milk business only, the ratio of these 
costs to the sales dollar is higher, being about — i. 

Costs and Expenses of Operations — Paid suppliers for bottles, containers, 
packing materials, coal, oil, gasoline, feed, sugar, tin plate, and other 
materials; and others for services such as freight, rent, light, power, tele- 
phone, telegraph, advertising, repairs, and other items, and including 
special provisions of $ made because of consequences and contin- 
gencies of wartime conditions and transition to a peacetime economy 
and after absorbing cost factors of inventory fluctuations 

Depreciation — This year's proportion of the amount necessary to provide 
for the eventual replacement of buildings, machinery, vehicles and equip- 
ment, due to wear and tear in the Company's operations 

Total 

Net Income — (Net earnings before dividends) 

This represents a return on sales of — %. After payment of dividends 

of $ to Stockholders, the balance of Net Income was left in 

the business to strengthen the Company's financial condition. 



[Caterpillar Tractor Co.] 

RESULTS OF OPERATIONS 
AND SUMMARY OF PROFIT EMPLOYED IN THE BUSINESS 

Calendar Year 19 — 

Sales 

Costs: 

Inventories brought forward from previous year S 

Add: Costs Incurred During Year: 

Materials, supplies, services purchased, etc S 

Wages, salaries, company contributions for group insurance, retire- 
ment plan, unemployment insurance and old-age benefits 

Portion of cost of buildings, machinery and equipment allocated to 

operations (depreciation) 

Interest (net) 

Federal income tax after deducting $ computed under "carry- 
back" provisions of Internal Revenue Code 

$ 
Deduct: Inventories Carried Forward to Next Year 

Costs allocated to year 

Profit for Year 

Add: Profit Employed in the Business at Beginning of Year 

Deduct: Dividends of $3 per Share Paid in Cash During Year 

Profit Employed in the Business at End of Year 



Statement 1 



189 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[Corn Products Refining Co.] 

INCOME AND EXPENSES IN 19— 
Income: 

Corn products sold to customers (after allowing for freight, trade discounts, etc.) $ $ 

We received income from foreign and domestic investments, royalties, etc. amounting to 

Which gave us a total income of $ 

Expenses: 

For shelled corn, fuel, supplies, etc $ 

For wages, salaries, selling and general expenses 

We set aside reserves to replace worn-out buildings, machinery and equipment to the 

amount of 

We paid out or set aside for Federal, state and other tax payments 

A total of $ 

Net Earnings: 

This left a profit of $ 

Out of which the owners of our business received, as dividends $ 

The balance, added to stockholders' investment in the Company, was 



'Electric Boat Company] 



WHAT THE COMPANY EARNED 19 19— 

Statement of Profits in Simplified Form 



Income 
The Company Received: 

For Products and Services Sold 
Less Refunds to U. S. Navy — 
"Renegotiation" 



Add Miscellaneous Receipts — 
Less Deductions 

Totals 

Outgo 
The Company Spent: 

Payrolls and Social Security 
Materials and Supplies and 

Other Costs 
Allowance for "Wear and Tear" 
Federal Income Taxes 





Pre-War 


War 




Average 


Average 




Pre-War 


War 


Post-War 


Years 


Years 




1936- 


1941- 


1946 


1940 


1945 


$ 


$ 


$ 



1945 



Five War Years 

1944 1943 1942 

$ $ $ 



1941 



Totals 


$ 


s 


s 


$ 


$ 


$ 


$ 


$ 


Profits 
The Company Earned: 
Income less Outgo 


s 


s 


$ 


$ 


$ 


$ 


$ 


$ 


Set Aside for Reserves 
Cash Dividends 
Retained in the Business 


$ 


$ 


$ 


$ 


$ 


$ 


$ 


$ 




s 


$ 


$ 


s 


$ 


$ 


$ 


$ 



190 



MiJji 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[El Paso Electric Co.] 

OPERATIONS FOR 19— AND 19— 
THE YEARS' INCOME 

From Sale of Electricity 

From Rentals, Interest and Incidental Activities 

THE YEARS' OUTGO 

For Operation and Maintenance 

For Employees' Payrolls 

Payrolls Charged Directly to Expense 

For Other Items 

Cost of Fuel 

Required in generation of 209,544,000 (19 179,917,000) kilowatt-hours. 

Purchased Power 

Cost of 53,108,000 (19 70,410,000) kilowatt-hours purchased from others. 

Maintenance Materials, Supplies and Services 

Repair parts and miscellaneous items necessary to keep the property in good op- 
erating condition. 

Other Materials, Supplies and Services 

A multiplicity of things to run the business. 

Depreciation of Property 

Wear and tear and obsolescence of equipment and facilities, etc. 

For Support of Government 

Federal Income Taxes After Extraordinary Reductions 

Other Federal Taxes 

Property Taxes 

Other State, Local and Miscellaneous Taxes 

For Security Holders 
For Holders of Bonds, Notes, etc.: 

Interest and amortization 

Portion of Bond Redemption Premium Equivalent to Resulting Reduction in Federal 

Income Taxes 

For Holders of Preferred Stoc'< 

Balance for Holders of Common Stock and for Reinvestment in the Business: 

From Earnings 

Extraordinary Reduction in Federal Income Taxes which resulted from Losses and 
Expenses incurred by Another Member of the Consolidated Group 



19— 



19— 



[Chesapeake & Ohio Railway Co.] 

SOURCES AND DISPOSITION OF INCOME 
OUR INCOME CAME FROM THE FOLLOWING SOURCES: 

19— 

Revenues from hauling coal and coke freight f $ 

Revenues from hauling other freight 

Revenues from carrying passengers 

Other transportation revenues 

Rent from equipment used by others, less amounts paid to others 

Dividends from stocks owned 

Other income from non-railroad operations 

Total $ 

[Continued on page 192] 



19— 



Increase or 
Decrease 



191 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 

[Chesapeake & Ohio Railway Co. —Continued] 

WE DISPOSED OF OUR INCOME AS FOLLOWS: 

Wages $ 

Materials, supplies, and fuel 

Railway tax accruals, other than federal income and excess profits taxes 
Payments to contractors, associations, other companies, and individuals 

for services and expenses 

Rentals and expenses paid for facilities used jointly with others, less 

amounts received from others 

Interest on Funded Debt 

Other interest 

Depreciation, amortization, and retirement; 



Total 



Net Income before federal income and excess profits taxes 
Federal income and excess profits taxes 



Net Income 



$ 



$ 


$ 


$ 


$ 


$ 


s 



DISPOSITION OF NET INCOME AND SURPLUS WAS AS FOLLOWS: 

Appropriations for Sinking and Other Reserve Funds $ 

Dividends paid on Common Stock 



[American Type Founders, Incorporated] 

A CONDENSED AND SIMPLIFIED PRESENTATION OF OUR FINANCIAL STATEMENTS 



OUR BALANCE SHEET 
AS AT MARCH 31, 19— 



OUR INCOME STATEMENT 
FOR THE YEAR ENDED MARCH 31, 19- 



We Owned: 

Cash and U. S. bonds $ 

Receivables from the U. S. Government and other 
customers 

Claims against the U. S. Government for tax re- 
funds under carry-back provisions 

Finished products, products in process of manu- 
facture and raw materials 

Plants and equipment at depreciated values, with 
land, including timberlands 

Investments, cash value of life insurance policies 
and other assets 

Total $ 

We Owed: 

To banks for V Loan borrowings in connection 

with war contracts $ 

To others for materials and services 

We Had Set Aside: 

A reserve for Federal taxes 

A reserve for expenditures in connection with 
reconversion to peacetime production 

We Had Left: 

The stockholders' investment in the business . . . 

Total $ 

192 



We Received: 

Income from sales to the U. S. Government and 
commercial customers $ 

Interest, discounts, dividends, etc 

A tax credit under carry-back provisions entitling 
us to a refund of a portion of the Federal taxes 
p id in previous years 

Total Received $ 

We Incurred Expenses: 

For manufacturing materials, wages, supplies, local 

taxes, etc $ 

For administrative, selling and general expenses 

For interest charges incident to the financing of 

war activities and for other miscellaneous 

charges 

Total Expenses $ 

• — 



Excess of Receipts over Expenses (Net Income) $ 



We Applied our Net Income to: 

The payment of a dividend to stockholders . 
Retained profits reinvested in the business . . 



_ 



MAKING FINANCIAL STATEMENTS UNDERSTANDABLE 



[Armstrons Cork Company] 

THE COMPANY'S POSITION ON DECEMBER 31, 19— 

We Owned (Assets) 

Cash in banks and on hand available to pay bills and meet pay rolls $ 

U. S. Government Securities 

Accounts receivable from customers and others 

Inventories of raw materials, work in process, finished goods and operating supplies 

Investments in foreign companies 

Other investments 

Land on which factories are located 

Machinery, equipment, factory and office buildings, after deducting the allowance for accumulated wear and 

use to date 

Insurance, taxes, advertising, and licenses and rentals on leased machinery, paid in advance of use or benefit 

therefrom 



Total of What We Owned (Assets) $ 



We Owed (Liabilities) 

Wages, raw materials, supplies and services $ 

Federal, State and local taxes (after deducting U. S. Treasury Savings Notes) 



Total of What We Owed (Liabilities) $ 



Difference between What We Owned and What We Owed 
(Reserves and Stockholders' Funds) 

Estimated excess cost of replacing inventories depleted during the war period S 

Possible future needs under the unemployment benefit plan, set aside from the amount left in the business 

by stockholders 

Investment of 1 0,71 6 stockholders in preferred and common stock 

Stockholders' past earnings (not distributed to stockholders) reinvested in the business for the purchase of 
plants, equipment and inventories, and to strengthen the Company's financial condition (known as "Earned 
Surplus") 



Total Stockholders' Funds and Reserves $ 



THE RESULTS OF 19— OPERATIONS 
We Received: 

From our customers for products they purchased $ 

From interest on investments, rent and other sources 



Which provided a total income to work with of $ 1 00.0% 

From This Amount: 
We paid: 

For raw materials 

For wages and salaries of employees 

For power, upkeep and supplies 

For selling and administration expenses (exclusive of wages and salaries) 

For Federal, State and local taxes, including property taxes 

In dividends to stockholders for the use of their funds invested in the Company 

We retained for the future needs and protection of the business 

$ 100.0% 

19: 



MAKING THE 
NARRATIVE READABLE 



CHAPTER 15 



This chapter uhis written by Dr. Rudolf 
Flest h . author of "The Art of Plain Talk." 

The annual report can do much to improve the 
public relations of a company — but only if the 
stockholders read it. It they throw the message 
into the wastebasket after a quick glance, much of 
the effort has been in vain. 

The report writer must realize that most stock- 
holders are not greatly interested in their annual 
share of company prose. As a piece of reading 
matter, the report has to compete with that tre- 
mendous mass of newspapers, books, magazines 
and letters that forms the daily reading diet of the 
average American — in other words, it must beat 
them in sheer readability in order to get any at- 
tention at all. 

Moreover, today stockholders are not the kind 
of people they used to be. Nowadays, the vast 
majority of the millions of stockholders are not 
financial experts or people with business expe- 
rience. They are people in all walks of life — on 
the average, they are utterly helpless in front of a 
balance sheet and quite unfamiliar with account- 
ing terms. Of course, stockholders today are not 
less intelligent than those of twenty years ago, but 
facts have to be presented to them in simple every- 
day language or they won't understand what's in 
the report. 

A REPORT 

MUST BE INTERESTING 

"Readable," according to the dictionary, means 
"easy and interesting to read." Let's forget about 
"easy" for a moment and let's ask ourselves: What 
makes a thing interesting to read? Obviously, 
there is no general answer to that question, since 
different people are interested in different things. 
But on the whole it can be said that people are 
interested in things that are of direct concern to 
them and in anything else that is human, dra- 
matic, novel or exciting. 

194 



For the annual report, this means that the nar- 
rative should concentrate on two things: The com- 
pany's earnings and the stockholder's share in 
them, and all happenings during the report-year 
that are of interest to, say, the average newspaper 
reader. It is usually quite easy to find such mate- 
rial: Every year has its highlights in new prod- 
ucts, research and development, labor relations, 
public relations and advertising, and other activi- 
ties. As a rule of thumb, the report writer might 
apply this test to each item: Would it — or did it 
— make a good newspaper story? 

To be interesting, therefore, the report must 
lean heavily on two types of items: 

1. Company earnings during the report year. 

2. Newsworthy events during the report year. 
Here are two examples of interesting items that 

were not used to full advantage but were buried 
in a mass of text, so that they were probably 
missed by most readers. 

In July 19 — we became the first commercial spon- 
sor of the mystery program " ," starring . 

This broadcast promoting , is over the 

Broadcasting System on a coast to coast hookup of 86 

stations every Tuesday from 8:30 p.m. to 9:00 p.m. 

Eastern Standard Time. The program is regarded 
as one of the outstanding mystery radio shows. If 
you haven't listened in, I suggest that you do so. 

This suggests an excellent tie-up of the annual 
report with the advertising and public-relations 
program of the company. 

The Shipbuilding Division, during the 19 — 19 — 
period, completed and delivered 1,085 vessels includ- 
ing a battleship, aircraft carriers, cruisers, destroyers, 
and destroyer escorts, army and navy transports, in- 
fantry and tank landing craft, Liberty Ships, Victory 
Ships, oil tankers and other miscellaneous combat 
and cargo vessels, and in addition converted, repaired 
or serviced 37,778 vessels. 

This sentence, embedded in a paragraph deal- 
ing with financial matters, would make any good 



I 



MAKING THE NARRATIVE READABLE 



newspaperman weep. What a story thrown away! 
What an opportunity to make the report an ex- 
citing and unforgettable document! 



A REPORT 

MUST LOOK READABLE 

Many interesting items in annual reports are lost 
because they are hidden away in the middle of 
solid, unappetizing chunks of print. To be read- 
able, a report must first of all look readable. A 
writer is only half through his job when he has 
"'written the report" — dictated it to a stenographer 
or a dictaphone. He will be wise to spend just as 
much time in dressing his narrative in type. 

There are four things that make a printed text 
look readable: 

Short paragraphs. 
Frequent subheadings. 
Large type. 
Short lines. 

What is a short paragraph? Naturally, there is 
no fixed answer. But the paragraphs in most an- 
nual reports are far too long, they look uninviting 
and dull. As a rule of thumb, a paragraph should 
not run over half a dozen sentences, and since the 
average sentence in popular writing has about 
seventeen words, an average paragraph shouldn't 
have more than one hundred words. 

Even more important is the matter of subhead- 
ings. For the stockholder, as for any other reader, 
it is psychologically necessary to break up the pages 
into small manageable units. Strange as it may 
seem, five groups of four paragraphs each look 
easier to read than an unbroken succession of 
twenty paragraphs. In an annual report — whose 
narrative usually consists of a series of unrelated 
items — this breakdown by subheadings is essen- 
tial. 

The subheadings should be large and stand out 
clearly. This is often achieved by the use of color 
or tint blocks. Read by themselves, the subhead- 
ings should form a rough outline of the report. 
This effect will be helped if they are written in the 
form of brief sentences (as in this chapter) rather 
than mere titles. 

"Large type" is not as easy to define as it may 
seem. To the average person, printers' measure- 
ments^ — points and picas — are a mystery; in addi- 
tion, the right size of type depends on the type 
face — the kind of letters used — and the leading — 
white space between the lines. So there is no 



ideal size of type for annual reports — or for any- 
thing else, for that matter. But the report writer, 
before leaving all matters of typography and for- 
mat to the printer, should remember the scien- 
tific facts that 12-point type is easier to read than 
10-point type and that anything smaller than 10- 
point type causes eyestrain for the normal reader. 
Compare: 

This is 12-point type. 

This is 10-point type. 
This is 8-point type. 
This is 6-point type. 

Although 1 1- or 12-point type is not unusual in 
annual reports, short lines are still a rarity. Yet 
studies have shown that long lines make difficult 
reading; apparently today's readers are so accus- 
tomed to narrow newspaper columns that they 
find everything else troublesome. Popular maga- 
zines have long recognized that fact and use three 
columns for the normal size of page and two col- 
umns for the pocket-size page. Any quick test 
will show that the average newspaper or magazine 
column (2 to 2i/ 2 inches wide) runs to about six 
or seven words. 

The report of a large railroad company, printed 
in eight-inch, eighteen-word lines of solid 6-point 
type, is a good sample of the visual punishment 
some companies inflict on their stockholders. 



STICK TO SHORT SENTENCES 

Aside from subject matter and outward appear- 
ance, readability is mostly a matter of sentence 
structure and choice of words. Corporations still 
have much to learn in these matters. Even com- 
panies that are nationally known by their crisp 
and lively advertising copy, are stuffy, stodgy and 
old-fashioned in their annual reports. 

The average modern newspaper or magazine 
sentence has sixteen to twenty words. The aver- 
age company report runs to sixty-one-word sen- 
tences like this: 

The Employees' Suggestion Plan, initiated early in 
19 — , has demonstrated the practical need for and 
value of established channels through which each in- 
dividual employee may express his ideas and sugges- 
tions affecting any and all phases of the Company's 
policies, operations, and results, with the full assur- 
ance that each such idea or suggestion is appreciated 
and will be carefully analyzed and considered. 

195 



MAKING THE NARRATIVE READABLE 



This is the kind of writing that would automati- 
cally be blue-penciled by any experienced editor. 
It is simply an elaborate way of saying: "In 19 — 
we started an Employee Suggestion Plan." 

For contrast, let's look at a well written para- 
graph with an average sentence of eighteen words: 

As already indicated, our fundamental difficulty 
arises from the Government's control of wages and 
prices. There are some things that the management 
of the Company can and will do. We shall make all 
reasonable efforts to effect economies in operations 
and to reduce overhead. We shall attempt to expand 
production and sales of those products that yield a 
margin of profit. However, no matter how success- 
ful our efforts in these directions may be, this Com- 
pany cannot enjoy stable and profitable business until 
our prices are commensurate with increased costs. 

Ordinarily, the best remedy for overlong, stuffy 
sentences is to break them up — to make short sen- 
tences out of dependent clauses. Here is an ex- 
ample (101 words) : 

Believing the physical union of the two businesses 
to be desirable and in the best interests of the stock- 
holders of each corporation, the Boards of Directors 
have given further consideration to the matter and 
have agreed in principle upon a new plan which 
would contemplate the transfer of the business and 
substantially all of the assets of the A Company to B 
in exchange for shares of common stock of B on a 
basis which would permit the distribution to the A 
Company stockholders of one and one-half shares of 
B common stock for each share of A Company com- 
mon stock. 

Rewritten in four sentences averaging fourteen 
words, this becomes: 

The Boards of Directors of both companies thought 
a merger desirable and in the best interests of the 
stockholders. They finally agreed on a new plan. 
The business and substantially all assets of the A 
Company will be transferred to B in exchange for B 
common stock. A Company stockholders will get li/g 
shares of B common stock for each share of A Com- 
pany common stock. 



WRITE AS YOU TALK 

The wording of company reports is often far re- 
moved from ordinary, everyday English. Some- 
196 



times the language used is stuffy, old-fashioned 
"business English" — ". . . the company is well 
positioned . . ." ". . . in furtherance of . . . ," 
". . . during the forepart of 1945 . . ," Some- 
times it is typical legal jargon — "pursuant to," 
"the said employees," "hereinafter." Clumsy writ- 
ing and errors of grammar and usage are quite fre- 
quent. An example is the use of and which in the 
following sentence: 

We have already introduced to the market a new 
type of shaving brush made out of nylon bristles and 
which has had a ready public acceptance. 

Here is another prose gem: 

Once the true facts in this regard are understood 
much of the current harangue over wages and profits 
becomes absurd on its face. 

Aside from the awkward expressions "true 
facts" and "absurd on its face," we have here "in 
this regard" — one of the many compound ad- 
verbs, conjunctions and prepositions that are the 
trademark of pompous, wordy writing. It is a 
good rule to avoid all such expressions that con- 
sist of more than one word — "as regards," "with 
respect to," "in conjunction with," "prior to" and 
all the rest. 

Usually, company reports are particularly poor 
in the use of transitional expressions. Since the 
narrative is usually a string of comparatively un- 
related facts, most paragraphs start in a fumbling 
way with some such phrase as: 

The first item of interest is . . . 

As related to sales income during the 

year . . . 
To discuss general company operations, 

they can be best summarized . . . 

The remedy here is not rewording but simply 
cutting. If subheadings are properly used, transi- 
tional phrases are not needed. 

A particularly ticklish point is the use of ac- 
counting terms. They should be avoided in the 
narrative or, if used, should be explained in 
simple language. Phrases like "tax accruals" or 
"renegotiation adjustments" are meaningless to 
the average stockholder. As Mr. Don Herold 
says, in a booklet for B & O employees: 

A lot of companies get out statements and "reports" 
every once in a while, and I've always thought most 



MAKING THE NARRATIVE READABLE 



of them were pretty dry and hard to understand . . . 
I guess the reason most company reports are Greek 
to me and probably to you is that they are written by 
accountants, and — while accountants are nice fellows 
— they talk a language all their own. 

Simplifying difficult material is popularly 
known as 'putting it in one-syllable words." 
There is a basic truth in that expression. Diffi- 
cult English has too many syllables. Words like 
"renegotiation adjustment" are hard to read be- 
cause they are so long; and they are so long be- 
cause they carry a load of prefixes like re- and 
ad- and suffixes like -ation and -merit. If words 
without prefixes and suffixes are chosen wherever 
possible, the number of syllables will naturally de- 
crease and the report will be much easier to read. 

In general, the text should have not more than 
one and a half as many syllables as w-ords. In the 
above example from Mr. Herold's booklet, there 
are only one-third more syllables than words. In 
the following typical passage from a company re- 
port there are three-quarters more syllables than 
words — which is much too heavy for easy reading: 

The decrease in production premium payments was 
in line with expectations and, as anticipated in last 
year's annual report was more than offset by di- 
minishing charges for depletion and depreciation. 
With respect to the smelting of Mexican concentrates 
for U. S. Government account, the proceeds of the 
sale of metal recovered therefrom and the cost of 
smelting have, heretofore, appeared in sales and pro- 
duction costs, respectively. Under the revised pro- 
cedure, only a net treatment cost or smelting toll is 
reflected in sales. The reduction in volume of the 
Insulation Contract Department reflects curtailment 
of defense plant construction. 

Loosened up, this might read: 

We expected that production premium payments 
would go down. As we said in last year's report, this 
was more than offset by smaller charges for depletion 
and depreciation . . . etc. 



FIGURES CAN 
TELL A STORY 

In his excellent book The Art of Useful Writing, 
Walter B. Pitkin prides himself on what he calls 
his "parlor trick." He can take any statistical 
table and make it into an interesting story. All 
that is needed is one significant figure from the 



table and a good explanation of why it is signifi- 
cant. 

The moral of this for annual reports is clear: 
Since most readers are unable to read the finan- 
cial statements in the back, the key figures must 
be put into the narrative with a simple explana- 
tion of what they mean. But this device should 
be used sparingly. The fewer figures used, the 
more they will stand out. And to make them 
stand out, it is better to tabulate them than to in- 
corporate them in the running text. 

Here is an example of an effective two-line 
tabulation: 

Operating results for 19 — , on a consolidated basis, compare 
with the year before as follows: 

19— 19— Decrease 

Sales $147,025,205 $169,598,971 $22,573,766 

Net Income.. 4,046,694 4,707,974 661,280 

Even this simple type of presentation can be 
greatly improved by using round figures and sim- 
plified comparisons. A report of the Metropoli- 
tan Life Insurance Company contains the follow- 
ing exemplary table: 

For the thirteenth consecutive year the Company's benefit pay- 
ments to policyholders and beneficiaries exceeded a half billion 
dollars — $592,000,000 for the year. Here is the break-down: 

Type of Payment Amount Comparison 

with 19— 

Death claims $225.1 millions Up 

Matured endowments 149.0 millions Up 

Total and permanent disability 

benefits 9.5 millions About same 

Surrender values 40.5 millions Down 

Annuity payments 17.8 millions Up 

Accident and health benefits 33.5 millions Up 

Dividends 108.6 millions Up 

Refund for direct payment of 

weekly premiums 8.0 millions Up 

$592.0 millions 

A single figure can be made particularly effec- 
tive if it is dramatized by comparison with a 
familiar measurement yardstick. A striking ex- 
ample is the following paragraph from another 
report of the Metropolitan Life Insurance Com- 
pany: 

In 19 — new business came to Metropolitan in rec- 
ord volume. About 2,400,000 people bought new 
policies. That is more than the population of Iowa. 

The following description of earnings, from an 
actual report, is an example of how not to handle 
statistics. 

197 



MAKING THE NARRATIVE READABLE 

The profit for the fiscal year (52 weeks) ending De- 
cember 30, 19—, was $1,507,027, as compared with 
$2,713,423 for the preceding fiscal year 19 — (53 
weeks), and $1,504,813 for the fiscal year 19— (52 
weeks), or the equivalent, on 87,883 shares of $8 Cu- 
mulative Preferred Stock outstanding, of $17.15 per 
share for the year 19 — ■ (52 weeks) and $30.88 and 
$17.12 per share for the years 19 — (53 weeks) and 
19 — (52 weeks) respectively. After provision of 
$8.00 a share for dividends on the Preferred Stock out- 
standing, the profits for the fiscal years ending Decem- 
ber 30, 19— (52 weeks), December 31, 19— (53 
weeks) and December 25, 19 — (52 weeks), were 
equivalent to 50.6 cents per share, $1.27 per share and 
50.4 cents per share respectively, on the 1,588,697 
shares of Common Stock outstanding. 

Contrast the preceding paragraph with the clar- 
ity gained by presenting the same data in tabular 
form. 

52 weeks 53 weeks 52 weeks 

ending ending ending 

Dec. 30, Dec. 31, Dec. 25, 

7 9— 7 9— 7 9— 

Profits $1,507,027 2,713,423 $1,504,813 

Earnings per share 
87,883 shares of $8 
Cumulative Pre- 
ferred $17.15 $30.88 $17.12 

1,588,697 shares of 

Common $0,506 $1 .27 $0,504 

ADD THAT PERSONAL TOUCH 

Two of the examples in the preceding paragraph 
were taken from recent reports of the Metropoli- 
tan Life Insurance Company. These reports were 
a novel departure. One was written by Bruce 
Barton, writer and advertising executive, the other 
by Marquis James, Pulitzer-prize winning histo- 
rian and biographer. Both are outstanding ex- 
amples of report writing. 

Naturally, their high quality is easily explained 
by the fact that both reports were written by pro- 
fessional writers. But that is not the whole ex- 
planation. These reports are easy and interest- 
ing to read because they convey the feeling of 
being written by individual human beings. Their 
tone is deliberately not that of a corporation ad- 
dressing its stockholders but that of one person 
telling another about some affairs of common in- 
terest. They are written in the first person sin- 
gular — with striking effect. Here is an example 
from Bruce Barton's report: 

Most interesting to me of all the Company's invest- 
ments is Parkchester, in New York, the largest single 

198 



housing project ever undertaken either by private en- 
terprise or Government. So much has been told you 
in previous annual reports about this wonder city, 
giving shelter, light, air and sunshine to 12,273 fam- 
ilies, that I shall add only a word. If you visit New 
York at any time, write Parkchester on your list of 
"musts," along with the Empire State Building and 
Rockefeller Center, two other miracles, by the way, 
which were made possible in part by the investment 
of Metropolitan funds. Words are inadequate to 
describe Parkchester. Only by seeing it can you un- 
derstand the size of its service and the promise it 
holds out to thousands of Americans as a demonstra- 
tion of what can be provided by private capital in 
modern living at low cost. 

And here is a passage from Marquis James' re- 
port: 

Back in the gilded 1920's they would say of a cer- 
tain stock, "You can put that away and forget it." 
How many of us did just that — until October 1929. 
Then the stock recalled itself to our minds — and a 
sorry sight it was. But in the hardpan 30's, when I 
"forgot" my Life insurance, it went right on working 
for me, increasing in value year by year, protecting 
my family and freeing my mind from one set of per- 
plexities. 

Of course, report writing like this is still excep- 
tional. But since the narrative parts of practi- 
cally all annual reports are signed by the president 
or the chairman of the board, there is plenty of 
opportunity for adding that precious first-person- 
singular touch. And surely there is no reason 
why all reports should not be written at least in 
the first person plural. "The Company" sounds 
formal and distant, "your Company" sounds stilted 
and contrived, "our Company" sounds natural 
and right. Witness the lively, conversational tone 
of the following passage: 

So far in 19 — our business has been good. All of 
our major departments are working at full capacity. 
Our net results for the first quarter of 19 — will be 
better than they were for the first quarter of last year. 
There has been a marked pickup in our export busi- 
ness and if our customers abroad could readily obtain 
American dollars this department of our business 
would be very much improved. 

As long as a report has that personal touch, it 
cannot be very far wrong in its approach. It will 
read as if someone familiar with the company told 
a chance acquaintance about how the company 
got along last year — which is exactly the way a re- 
port should read. 



LIVENING UP 

THE ANNUAL REPORT 



CHAPTER 16 



An appealing modern report has these elements: 

1. An attractive appearance. 

2. A well written factual narrative. 

3. A graphically and pictorially illustrated story. 

4. Statistical material that makes the report com- 
prehensive. 

5. Understandable financial statements, with 
comparative figures. 

If these elements are skilfully combined, the 
annual report will reflect what business under pri- 
vate enterprise really is — a vital, moving, lively, 
progressive force. If the report consists only of 
conventional financial statements and a dull letter 
of transmittal with some hastily prepared com- 
ments, it will make private enterprise itself appear 
as a decadent affair. In desisTim? the form of the 
annual report, executives must not lose sight of 
its principal function: to present a full, factual re- 
view of the year's accomplishments in a manner 
that will gain and hold the attention of the reader. 
It is neither necessary nor desirable to devote too 
much conscious effort to embellishing the report's 
appearance. Concentrating effort on simplicity, 
clarity and completeness will, in many cases, auto- 
matically give it the functional beauty so pleasing 
to modern taste. 

SELECTING THE SIZE 

The cover size of the report is determined to some 
extent by the characteristics of the story to be told, 
and this in turn is influenced by such factors as the 
type of industry, the size of the company, its earn- 
ings and the type of stockholders (see page 16) . 
No one size can therefore be recommended as suit- 
able for all companies. 

Most illustrated annual reports are about 8i/£" 
X 11" in size. This dimension is not much 
larger than the lz/4" x 1034" size of Time maga- 
zine, which most stockholders indicated as their 
choice in the Balasny survey (see page 223) . 



More may be done in preparing an attractive 
layout with this size than with any other; it is par- 
ticularly suitable for presenting comparative sta- 
tistics, charts, maps, photographs and other illus- 
trations. With the type set in two columns, the 
line is a good length for easy reading, and there 
is ample room to have copy on each page, even if 
large photographs and diagrams are used. Col- 
ored illustrations may be set effectively in the cen- 
ter of facing pages, with copy in both outer col- 
umns. In some instances, charts may run over 
three columns. Single-column cuts, illustrations 
and tables may be interspersed readily for variety. 

This size also lends itself to a magazine format 
with a three-column set-up. The advantage of 
this arrangement is that the line of type is short. 
Also, no two pages are likely to be laid out in 
exactly the same form. The variety stimulates 
reader attention and interest. 

When the 81/4" X H" si ze is used and the two- 
column set-up is not desired, the line of type 
should not exceed 4%". Even then, ample lead- 
ing between lines is desirable. A column of this 
width allows space for illustrations or notes in the 
margin as well as across the top or bottom of the 
pages. 

Convenience in filing is one of the most com- 
pelling arguments in favor of selecting a size 
slightly under Si^" X U" say, 8" X 101/4". 
Many binders will accommodate a booklet of 
these dimensions, and so will the usual corre- 
spondence-size manila folder used in business 
files. Individuals with large holdings, institu- 
tional investors and financial advisers favor a re- 
port that is easy to file. 

ODD SIZES AND FORMS 

Odd sizes and shapes generally have no particular 
virtue in an annual report. The booklet is not a 
catalogue, it does not have to stand out from other 
companies' reports to get attention. 

However, when an odd form is used to achieve 

199 



LIVENING UP THE ANNUAL REPORT 



a utility feature, it may be justified. A report of 
the Thatcher Glass Manufacturing Company, Inc., 
was printed and stitched to open like a calendar. 
The cover measured 7^4" X 8" on the top surface 
and 7y 4 " X l0 " on tne bottom. Each of the 
eight intervening leaves was about one-fourth 
inch longer than the preceding one. On this one- 
fourth-inch margin were printed the items dis- 
cussed on the page. Thus, one could see at a 
glance the contents of the entire report and could 
open directly to the information desired. 

Binding an 8l/£" X 1 1" report on the short side 
makes an odd size, but the wider page obtained 
may fit the plan of the report — for example, if 
most of the text is to be accompanied by large 
photographs, maps and charts. 



effectively yet with restraint in order to avoid the 
impression of undue expense. 

Surprinted Ben Day tints and solid colors can 
give a report printed in two colors the effect of 
having been printed in three or more colors. 
Ben Day greys in a report printed in black alone 
can bring out distinctions in charts and graphs 
and improve line drawings. This is amply illus- 
trated in the charts reproduced in this book. In 
many cases Ben Day was substituted for the color 
used in the original. 

Care must be taken not to make the text harder 
to read because of the color. Black print on red, 
green, dark blue or violet is hard to read, so is 
white on silver or on any pastel. Printing small 
type over a half-tone is also objectionable. 



NUMBER OF PAGES 

The report should contain the number of pages 
necessary to tell the story of the year's accomplish- 
ments comprehensively and interestingly. Exces- 
sive length, however, should be avoided. Any- 
where from twenty to forty pages (including four 
pages of cover) would appear to be adequate in 
most cases. 

Of the 1946 reports rated as "Modern" in the 
Financial World's survey (see page 2), 87% 
had twenty pages or more. Of those given "Hon- 
orable Mention," 93% had twelve pages or more. 
About 68% of those rated as "Unchanged" still 
had eight pages or less. 

A well planned report makes use of both sides 
of every page of the report. Each page of the 
report should be numbered for easy reference. 

USE OF COLOR 

Color unquestionably adds life to the annual re- 
port. In charts and graphs, color can bring out 
comparisons and differences more vividly than 
black and white. Whether used only in headings 
and graphs or more generally in photographs and 
other illustrations, color makes the report more 
dramatic, attracts attention and gets items read 
that might otherwise not be. Executives must 
bear in mind, however, that stockholders may find 
fault if the report appears elaborate and expensive 
because of many colors. Even where the cost is 
justified because the run is large, the cost per copy 
comparatively small and the distribution helpful 
to public relations, some criticism may have to be 
met. Skilful design and execution can use color 
200 



HINTS ON LEGIBILITY, TYPE 
FACE, LEADING, HEADINGS 

The selection of the type face should be left to 
someone who has had experience in preparing 
printed matter. The novice is likely to be con- 
fused by the number and variety of type faces he 
sees in the printer's specimen book. To keep the 
appearance harmonious and in good form, the 
number of type faces should be kept to three. 
Variety can be obtained with such devices as hand- 
lettered script, reverse plates and illustrations. 

For the sake of appearance and legibility, it is 
always advisable to insert space between the lines. 
The printer does this by inserting leads, which are 
thin strips of metal separating the lines of type. 
The amount of lead that should be used depends 
upon a number of factors, such as the type face in 
which the copy is to be set, the size of type to be 
used and the length of the line. In general, small 
faces need less lead than large ones, light faces 
need less lead than heavy ones, and short lines 
need less lead than long ones. 

Most annual reports that are hard to read have 
failed to allow sufficient leading, have used too 
long a line for the size of type or have employed 
too small a type face. Text should never be 
printed in less than 10-point type for lines run- 
ning from two to three inches in width; 12-point 
type is preferable for lines of from three to seven 
inches in width. 

For further hints on how to make the annual 
report readable, see Chapter 15, especially page 
195. See pages 289 et seq. for reproductions of 
pages from some annual reports that meet the 
highest standards of legibility. 



w 1 !, 



LIVENING UP THE ANNUAL REPORT 



PRINTING 

Most annual reports are produced by letterpress 
process: some use the offset process (lithography) . 
The nature of the illustrations, the amount of 
type to be set and the size of the run are some of 
the factors to be considered in selecting the print- 
ing process. 

BINDING 

Practically all annual reports are saddle-wire 
stitched through the middle of the folded sheets 
and the cover, the book lying open. In rare in- 
stances, when the report is bulky, it must be side- 
wire stitched. In this case, the wires are inserted 
vertically through the inner margin of every leaf, 
the book lying closed, and the cover is then pasted 
on. 

A few reports come in plastic or wire spiral 
bindings. Since this feature adds to the cost and 
takes more production time than wire stitching, a 
company should have some good reason for using 
it. 

ENVELOPES 

The envelope for the report is usually simple. 
Occasionally it makes use of color, if the report 
does, to attract attention. It is good practice to 
show on the envelope that it contains the annual 
report. 

A few companies mail their annual reports 
without envelopes, utilizing the same mailing 
privilege as magazines. This method requires 
extensive zoning and tying-up of bundles of re- 
ports for each city, town and village. 

ESSENTIALS OF A COVER 

The minimum essentials of any annual-report 
cover are: 

1. Paper stock that gives the report body. The 
cover should be heavier than the paper used 
in the report proper. For instance, a 70- or 
80-lb coated stock would have a 100-lb coated 
cover-stock. 

2. The name of the company. 

3. The title. This is usually "Annual Report." 
In some instances it is called a "Year Book" or 
"Annual Report and Year Book." 

4. The calendar or fiscal year covered by the re- 
port. Some companies number their reports 
or otherwise indicate the age of the business. 



COVER IDEAS 

The following; ideas have resulted in effective 
cover designs: 

1. Photograph related to the company's product 
or opeiations. If the picture is not perfectly 
obvious, it is well to explain it on the inside 
of the cover, the back, the first page or other 
suitable place. The International Harvester 
Company reproduced its colored cover in 
miniature and without color on the first page 
of the report with a brief statement of where 
the picture was taken and what products were 
portrayed. 

2. Maps (see page 203) . 

3. A sample of the company's product. Gaylord 
Container Corporation had a corrugated 
cover; National Container Corporation, a 
boxboard cover; National Vulcanized Fibre 
Company, a fibre cover; United Wallpaper, 
Inc., a washable wallpaper cover. Century 
Ribbon Mills had a gold seal with two bits of 
blue ribbon extending from under it in di- 
ploma fashion. 

4. Simulation of the company's product. The 
cover of a report by A. Hollander & Son, Inc., 
was a photograph of black persian lamb; the 
cover of General Shoe Corporation's report 
simulated the grain of leather. 

5. An inspirational message. General Foods 
carried the following message on one of its re- 
port covers: "There is no lasting means of get- 
ting more from producing less. This country 
is a gigantic enterprise with 140 million part- 
ners. Only as partners, working smoothly 
together, can we continuously produce what 
we want, and raise our levels of living to new 
heights." For another example see page 24. 

6. Embossed reproduction of building, trade- 
mark, seal or other emblem. 

7. Background of brief statements of fact, names 
of products, trade-marks, slogans or other tele- 
graphic items. The words usually appear in 
white on a light-colored cover. 

8. A die-cut that permits a picture or other mes- 
sage on the first page of the report to show 
through. 

9. For special illustrations, panoramas, maps or 
extensive statistical summaries, the front or 
back cover, or both, can make use of a "gate- 
fold" spread. In such cases, the cover-stock 
is of a size to permit a fold-out from the top, 
bottom or outer edges of the cover. 

201 



LIVENING UP THE ANNUAL REPORT 



Covers can be plasticized or varnished to give 
the effect of heaviness. Varnishing also brings 
out color and protects the report from dust, finger- 
prints and the like. 

USING THE INSIDES OF COVERS 

The annual report can be regarded as a book and 
treated like one by those who prepare it. In that 
case, it will have no textual matter on the insides 
of the covers and might even have a title page to 
ease the reader into the text. 

On the other hand, the insides of the cover may 
be used for material that does not necessarily rush 
the reader into the text. Insides of front and 
back covers have frequently been used for the fol- 
lowing types of material: 

Organization chart (see page 21) . 

Directory page (see page 21) . 

Photographs (see list opposite) . 

Maps (see ideas at page 203) . 

Sketch of proposed plant construction. 

Products (see page 166). 

Photographs of directors and officers. 

Reproduction of advertisements. 

Highlights of the year. 

Brief history of the company. 

Memorials. 

Notice of forthcoming annual meeting and 
request for proxies. 

Group of charts. 

Samples of products. For example, a pa- 
per company inserted in a pocket in the 
report samples of paper it produced. A 
textile company attached a swatch of ma- 
terial to the inside back cover. 

ILLUSTRATIONS 

Illustrations in annual reports are of the following 
general types, each of which is discussed below: 

1. Photographs. 

2. Maps. 

3. Charts, graphs and pictorial presentations of 
statistics. 

4. Sketches, drawings and cartoons. 

The illustrations, if used skilfully, will give va- 
riety and freshness to each page of the report, 
make factual material more interesting and easier 
to read and help get the report read. A two-page 
illustrated spread in the center of the report may 

202 



bring out the most important developments of 
the year. Fig. 8 on page 52 was used in this way. 
The commonplace in illustrations should be 
avoided. With overuse, an illustration loses its 
flavor. A remark in Barruns, March 24, 1947, 
throws out a warning against the tendency to 
stylize illustrations: 

Commonplace now are the little figures which coast 
down hill on sales charts and then strive manfully up- 
ward and onward when sales trends improve. Be- 
whiskered Uncle Sam taking his share of the product 
of the toil and sweat of management and labor is a 
stock figure now. So, too, is the square-jawed, over- 
ailed laborer and the keen-eyed, alert representative 
of the business executive. . . . 

PHOTOGRAPHS 

Companies that contemplate using photographs in 
their annual reports should collect pictures during 
the entire year. A selection may be made when 
the report is compiled. This practice should be 
followed whether or not an outside agency is used. 
An alphabetical list of subjects of pictures that 
have been used effectively in annual reports is 
given below. 

Additions to plants. 

"Before and after" pictures of any phase of 
the company's operations. 

Bird's-eye view of properties. 

Counter displays. 

Community pictures. 

Demonstration equipment. 

Directors, group or individual. 

Early photographs of plant and methods of 
operation contrasted with modern ones. 

Employees, group or individual. 

Employee's day at work. For example, a 
pictorial story of a typical skilled miner, 
showing him on his way to the mine, get- 
ting his lamp, discussing the day's pro- 
gram with his foreman, waiting for the 
man-trip, riding in safety man-trip car, 
testing for gas, and so forth. 

Employee social affairs and recreational ac- 
tivities. 

Employee training. 

Employee welfare scenes. 

Industries that benefited by company's op- 
eration. 

Installations. 

Interior of factory illustrating process of 
manufacturing. 



LIVENING UP THE ANNUAL REPORT 



Interior views of stores. 

Laboratory pictures. 

Machinery for various operations in manu- 
facturing process. 

Magazines in which company advertises. 

Management personnel. 

Materials used in production. 

Models of company's product. 

Office building owned by company. 

Office scenes. 

Products in use. 

Reprints of national magazine advertise- 
ments. 

Reprints of publicity. 

Research and testing equipment. 

Safety education. 

Salesmen's meetings. 

Shots typifying production, transportation, 
marketing:, finance, research. 

Store fronts. 

Stores through which product is sold. 

Stockholders at home or at work. 



the last page of an annual report of Schenley Dis- 
tillers Corporation, stars marked the location of 
distilling and blending plants. Lines led out 
from the stars to circles in the free space around 
the map. In the circles were the names of the 
subsidiary companies operating various distilling 
and blending plants. Over each company name 
was silhouetted an outline of the plant. Other 
subsidiary companies were listed below the map. 

Where the plants are not numerous, they may 
be silhouetted in circles right on the map, as was 
done in a map used by Union Bag & Paper Corpo- 
ration. In this case, the locations of mills and 
factories, branch sales offices and warehouses were 
listed below the map. 

3. Location of stores. The center spread of 
one of J. C. Penney Company's annual reports 
consisted of a map of the United States on which 
white figures in the center of each state indicated 
the number of J. C. Penney stores located there. 
The following legend identified the extent of the 
number of stores in each state. 



MAPS 

Certain types of information are effectively pre- 
sented through full-page or double-spread maps. 
By employing color, perspective and legends with 
which to identify the information disclosed, deco- 
rative results are obtained incidentally. In most 
cases, maps have added to the attractiveness of the 
report. The only time they fail to enhance the 
report is when they attempt to show too much. 
Bunching of names and symbols — unavoidable in 
some cases — will destroy the appearance and use- 
fulness of a map. 

Here are some of the uses that have been made 
of maps and an explanation of how the ideas were 
carried out. 

1. Location of plants, warehouses, branch of- 
fices, distributing points, chains of stores and serv- 
ice facilities. Continental Can Company, Inc., 
had a white map of the United States outlined 
against a blue Ben Day background on the in- 
side back cover of an annual report. The map 
showed locations of plants and service facilities. 
Eight types of locations and services were identi- 
fied by symbols printed in blue, the color used 
on the cover. For example, the legend for manu- 
facturing plants was a silhouette tower with a curl 
of smoke; for research laboratories, a retort. 

2. Location of subsidiaries and plants. On an 
outline map of the United States reproduced on 



1-10 STORES 
11-30 STORES 
31-50 STORES 
OVER 50 STORES 



4. Markets and customers. A sectional map 
of the area served by Tilo Roofing Company, Inc., 
was printed on the inside back cover of an annual 
report. It was entitled "Here is our Market." 
The explanation below this title read: "The 
homes and business properties in the area covered 
by this map constitute the potential market for 
TILO roofs and sidings. To properly service 
the entire area, TILO maintains Company-owned 
and Company-operated branch offices. The loca- 
tion of each branch is indicated on this map." 

The center spread of one of Burrough's annual 
reports made use of world maps of both hemi- 
spheres. The spread was entitled "The World is 
Burrough's Market." Lines leading from a pho- 
tograph of the main plant to starred spots on the 
two maps showed the near and remote places of 
the world to which the company's products go. 
Other photographs showed plants and typical 
offices. In this illustration, appropriate infor- 
mation was given of the number of company 
branches and service centers in the United States 

203 



LIVENING UP THE ANNUAL REPORT 



and Canada and the number of company and 
dealer sales and service centers in foreign coun- 
tries. 

5. Statistical data on payments, employees, 
stockholders. To show how The Borden Com- 
pany and its subsidiaries are an integral part of 
two nations, a pictorial map in one of its annual 
reports gave a bird's-eye view of Borden's opera- 
tions in the United States and Canada. Statistics 
showing what Borden paid to farmers and workers 
and for taxes, the number of employees and the 
number of stockholders were posted in billboard 
style in the areas to which they applied. Using 
the same statistical arrangement, a larger bill- 
board was placed in the lower righthand corner of 
the page, showing totals of the figures presented 
for the various countries in which this company 
does business. 

National Dairy Products used a map to show the 
distribution of stockholders by states. 

6. Territory and system maps. Public utili- 
ties, oil companies, railroads and bus companies 
have made frequent tise of territory and system 
maps. In one such map used by The Detroit Edi- 
son Company, a legend of lines and symbols in- 
dicated 120,000-volt tower lines, transmission 
lines, steam power plants, hydro-power plants, 
stepdown stations and substations. 

A map used by the United Carbon Company 
showed the oil and gas fields in which the com- 
pany is interested and the pipe lines to which it 
delivers gas. 

An attractive map showing the transportation 
of oil, used by the Union Oil Company of Califor- 
nia, is reproduced at page 205. 

7. Location of sources of supplies. National 
Sugar Refining Company used a center-spread, 
colored map of the world to show where its supply 
of sugar comes from. Various colors were used to 
show where production was at or below the 1935- 
39 average, where above the average, and which 
areas were nonproducing. The principal areas 
supplying the U. S. were designated by a symbol. 

8. Location of natural resources owned. A 
company whose operations include the taking of 
raw materials from the earth or its surface can use 
maps advantageously to locate ore beds, gas or oil 
fields, or timberlands. Maps can show the extent 
of these properties and their nearness to proc- 
essing plants or consuming markets. A center- 
spread in a report of the Southern Natural Gas 
Company illustrates this type of map. 

204 



CHARTS, GRAPHS AND PICTORIAL 
PRESENTATIONS OF STATISTICS 

Charts and graphs help to make figures interesting 
and understandable, emphasize important points 
and enhance the appearance of the report. Charts 
and graphs must be kept exceedingly simple. 
Any attempt to show too many factors in one chart 
or to use highly technical graphic forms will de- 
feat the purpose of the illustration — to tell a story 
at a glance. 

Most of the graphics prepared for annual re- 
ports are of the following types: 



Line charts. 

Bar-charts. 

A combination of lines and bars. 

Sector or pie charts. 

Other graphic presentations. 



A brief discussion of these types of charts is 
given in the following pages. The discussion is 
not intended as a manual of the techniques of pre- 
paring charts and graphs. 1 Its aim is to point out 
certain basic rules of graphic presentation that are 
the result of scientific study by trained statisti- 
cians. Unfortunately, many beautifully prepared 
charts do not follow these rules. Sometimes only 
lack of conformity results, but in other cases the 
story told by the charts is misleading. Better be- 
gin with the scientific rules and let the embellish- 
ments follow. 

Some of the charts presented in this book do not 
observe all the rules given in the following pages. 
Where this is so, the breach has been overlooked 
because the chart demonstrates some particular 
point. 

SUBJECTS TREATED 

IN CHARTS AND GRAPHS 

A wide range of subjects is treated in chart or 
graph form. In this book, illustrations of charts 
and graphs, as well as checklists of ideas for 
graphic presentations, are given for the following 
broad subjects: 

1 . Results of the year at a glance — a quick pic- 
ture of progress (see Chapter 4) . 

2. Production (see Chapter 5) . 

3. Volume of business, sales, prices (see Chap- 
ter 6) . 



1 For a complete treatment of the techniques of preparing 
charts and graphs, see Applied General Statistics by Croxton 
and Cowden, published by Prentice-Hall, Inc., New York City. 




n 


T1 

o 

z 

3 j 





r. "s -= t-i: : 



205 



LIVENING UP THE ANNUAL REPORT 



4. The cost of doing business — "Where the 
Sales Dollar Went" (see Chapter 7) . 

5. Earnings and dividends (see Chapter 8) . 

6. Financial condition: assets, liabilities, stock- 
holders' equity and other balance sheet 
trends (see Chapter 9) . 

7. Employment, wages and employee relations 
(see Chapter 10) . 

8. Taxes (see Chapter 11) . 

9. Stockholders (see Chapter 12) . 
10. Research (see Chapter 13) . 

LINE CHARTS 

This type of chart shows trends and is a desirable 
form for showing data covering a number of years. 
The horizontal scale, which shows the time ele- 
ment, runs from left to right with the earliest year 
at the extreme left. The vertical scale, which 
shows the dollars, quantities and percentages, or 
index numbers, units or other charted data, runs 
from bottom to top. 

The scale of all figures on the vertical axis 
should begin with zero. If this is not done, the 
usual impression received is not correct. There 
are only two exceptions to the rule that zero 
should be indicated: 

(1) Where the base line is an index of 100, the 
zero need not and often should not be shown, (2) 
if the chart is semi-logarithmic, zero cannot be 
shown. If the range of dollars or figures used 
in the chart begins some distance above the zero, 
the scale should be broken to indicate the omitted 
figures. Fig. 34, page 68, illustrates a broken 
scale. 

When trends for a number of items are shown 
on one chart — for example, the total figures at the 
yeai-end for each group of assets reflected in the 
balance sheet, or the composition of capital struc- 
ture — the area between the lines may be filled in 
with dots, cross-hatching, Ben Day or other mark- 
ings to separate the groups and bring out the com- 
parisons. In reports making use of color, the 
comparisons may be brought out by filling the 
areas with different colors, shades or markings 
over the colors. For example, see Fig. 89, page 
127. 

ARITHMETIC AND SEMI- 
LOGARITHMIC LINE CHARTS 

Line charts used in annual reports are generally 
drawn to arithmetic scales. This means that a 

206 



given distance on any axis, vertical or horizontal, 
always represents the same amount of change. 
Thus, on the year scale, the years are equidistant 
from one another; on the dollar, unit or per-cent 
scale, the jumps are regular and equi-distant from 
one another. 

In rare instances, annual reports have presented 
"semi-logarithmic" - or "rate of change" charts. 
Such charts are drawn on semi-logarithmic paper, 
sometimes referred to as "ratio paper." On this 
paper, equal vertical distances represent equal ra- 
tios or proportions. Therefore, when a year-to- 
year curve is drawn on such paper, equal slopes 
represent equal rates of change. This type of 
chart is very useful in clarifying and comparing 
rates of change. The arithmetic chart shows 
amounts of change. The semi-logarithmic chart 
shows: (1) A constant rate of change as a straight 
line, (2) the rate of increase or decrease by the 
slope of the line, (3) the comparison of rates or 
ratios between two or more lines by means of 
parallelism, or the lack of it, between these lines. 3 

Unlike the arithmetic chart, a semi-logarithmic 
chart has no zero base-line and does not permit in- 
terpretation of curves in terms of distance above 
a base-line. Some instances where the semi-loga- 
rithmic chart is suitable for annual reports are 
pointed out at pages 208 and 209. 

In the opinion of some statisticians, annual re- 
ports should make more use of semi-logarithmic 
charts. Undoubtedly, however, an untrained 
reader will be puzzled by the variations in the dis- 
tances on the scale. The arithmetic scale presents 
no such deterrent to quick acceptance of what the 
chart shows. 

If a semi-logarithmic chart is presented, the 
heading or explanation, or both, should make it 
perfectly clear that ratios or proportions are 
shown, rather than amounts. Otherwise, the 
reader who is used to arithmetic charts will as- 
sume the increases or decreases are absolute rather 
than proportionate. 



BAR-CHARTS 

Bar-charts are particularly suitable for showing 
comparative sizes of similar data over a period of 
years, trends, comparisons of two related items 



2 The term "semi-logarithmic" is used because one scale is 
logarithmic and the other is arithmetic. 

3 Applied General Statistics by Croxton and Cowden, p. 109, 
published by Prentice-Hall. Inc., New York. 



LIVENING UP THE ANNUAL REPORT 



and breakdowns of a total. Fig. 142, page 165, 
illustrates three of these purposes. 
The bars may be: 

1. Horizontal. The horizontal bar-chart is 
usually used for a categorical (nonchronological) 
series: that is, time is not one of the factors. The 
items compared are indicated at the left, or both 
left and right. The dollar amounts or other units 
charted are indicated at the bottom or top in a 
horizontal position, if vertical lines are drawn to 
mark off the sums at regular intervals. If vertical 
lines are not used, the pertinent amount can be 
entered in the bar or shown at the end of the bar. 
An example of a nonchronological bai-chart is 
given in Fig. 55, page 86. The horizontal axis 
alwavs begins with zero. 

2. Vertical. The vertical bar-chart is °ener- 
ally used to make chronological comparisons. In 
the vertical bar-chart, the dates run from left to 
right at the bottom. The first vertical bar is for 
the earliest year, the last for the latest. The 
amounts charted are indicated on a vertical scale 
at the left, or both left and right. be«innino with 
zero. 

3. 100^, or component bars. In this type of 
bar-chart, a bar represents 100%,, and the divisions 
of the bar indicate percentages of the whole. 
The vertical bar is more suitable for showing com- 
ponents than the horizontal bar. 

\\ nere a vertical bar-chart has each bar broken 
down into its components, the trend for each of 
the divisions can be shown by connecting each 
year at the division points. For example, see 
Fig. 57, page 88. 

SECTOR OR PIE CHARTS 

Sector charts, also called pie charts and divided 
circles, present data in the form of a circle, the 
entire circumference representing 100% and the 
various sectors representing percentages or por- 
tions of the whole. Pie charts are suitable prin- 
cipally for visualizing a breakdown of data for one 
year only, generally the year for which the report 
is made. In almost all cases, the same informa- 
tion can be shown in 100% bar-charts. The pie 
chart, however, may be more attractively pre- 
sented and dressed up. 4 



4 For a demonstration that a bar-chart does not tell a more 
precise at-a-glance story than does a pie diagram, see the article 
in the Journal of American Statistical Association, Dec. 1927, 
pp. 473-482, by Roy E. Stryker and Frederick E. Croxton. 



One popular kind of pie chart shows where the 
report-year dollar of revenue came from and how 
it was expended. A number of examples are 
given in Chapter 7. See also the comments at 
page 71, relating to charts showing where the 
sales dollar went. 

A pie chart is not suitable for comparing break- 
downs of one year with another or among a series 
of years. The reason is obvious: A number of pie 
charts would have to be drawn to bring out the 
comparisons. If the diameter is kept constant, 
there is no visual presentation of the change in 
the amount represented by the circle in each of 
the years. If the diameter is varied to reflect the 
change, the extent of the increase or decrease is 
not obvious to the reader, because it covers a large 
surface. Bar-charts, therefore, should be used in 
comparing breakdowns of totals for a period of 
years. 

Mechanical considerations often make it diffi- 
cult to set type within the irregularly cut seg- 
ments of a pie chart, particularly when they are 
small. An arrow may be drawn from a label out- 
side the pie to the appropriate segment, but this 
practice detracts from the very simplicity that the 
chart attempts to achieve. 



ADDING INTEREST 
WITH SYMBOLS 

Charts can be made more interesting and decora- 
tive by using small drawings or symbols to repre- 
sent units charted. Charts employing this device 
are called pictographs. The symbols should indi- 
cate the subject matter. For example, instead of 
a solid black bar to represent dollars, a stack of 
coins may be pictured. In a graph showing the 
number of employees, miniature figures of people, 
each representing a number of employees, may be 
used instead of an unimaginative black line. 
Where the symbols are of units that logically 
stand side by side — for example, people, auto- 
mobiles, ships, and the like — horizontal bars are 
used even where a time series is shown. See Fig. 
1 1 1 at page 146. Many illustrations of symbols 
are given in the charts reproduced in Chapters 
10 and 11. As previously indicated, however, 
the commonplace should be avoided. 

If symbols, each representing a certain number, 
are used, the reader should not be left to deter- 
mine the total by counting the number of symbols 
and multiplying. The chart should indicate in 

207 



LIVENING UP THE ANNUAL REPORT 



some way what the total is, unless the amount is 
obvious. 



ILLUSTRATION-CHART 
COMBINATIONS 

An effective way of animating charts and graphs 
is to combine them with photographs. The chart 
is superimposed on taint photographic back- 
grounds related to the item charted. There is 
danger, however, that if the chart contains printed 
matter, the print will be hard to read. Stock- 
holders have complained about this weakness of 
superimposing information on photographs. 



CHOOSING THE 
TYPE OF CHART 

In choosing the type of chart to present facts 
graphically, these factors should be considered: 

1. What must be brought out? One type of 
chart may be better adapted for a particular pur- 
pose than another. For example, in portraying 
the reduction of a funded debt, a curve may be 
less graphic than a bar-chart. 

2. Will the proposed chart be harmonious 
with others in the report? A great variety of 
charts without a basic harmony among them will 
give the same disturbing effect as bad color- 
combinations. Basic harmony in charts may be 
achieved by uniformity of lettering, thickness of 
lines, color and artistic treatment. 

Where time is one of the elements of the graph, 
a bar-chart or line diagram can be used. Ordi- 
narily, the following rules will help to determine 
which type to select. 

1. If specific years are compared, use the ver- 
tical bar-chart, since each year stands out individu- 
ally. This type of chart is not suitable, however, 
if a long series of years is to be shown. The line 
diagram is preferable in such a case. 

2. If the general change over a period of time 
is to be emphasized, rather than comparison of 
specific units of time, use a line diagram, because 
it shows clearly the amount of change as well as 
the trend. The slope of the line indicates the 
degree of change from period to period. 

CHARTING COMPARISONS 
OF TRENDS 

In the discussion of comparative financial state- 
ments at page 34, the point was made that adjust- 
208 



ments and explanations are often necessary to 
make the figures truly comparable. In the case 
of charts and graphs, unless the figures can be ad- 
justed to eliminate the differences that make the 
comparison untrue, the data cannot be graphically 
portrayed. 

COMPARISONS OF 
UNLIKE UNITS 

Two related but unlike items calling for different 
scales of figures, can be compared on one line 
chart. The left column of figures identifies one 
set of facts, and the right column the other. The 
base for both columns of figures should be zero. 

Before using such a two-scale chart with an 
arithmetic vertical scale, this question should be 
asked: What must be the jumps in one scale of 
figures as related to the other to bring out a fair 
comparison? For example, suppose you are com- 
paring sales revenue and tonnage shipped. If 
1000 tons of shipments normally produce about 
$5000 of sales revenue, a 1:5 relationship in the 
two scales will not distort the comparison. On 
the other hand, if the gradations in the dollars 
scale rise twice as rapidly as the gradations in the 
tonnage scale, sales revenue will appear to rise 
much more rapidly than shipments, and the chart 
will give an erroneous impression. 

The semi-logarithmic chart discussed at page 
206 is useful in comparing the rate of change be- 
tween two sets of figures that represent different 
but related items. If a department store wants to 
compare the rate of change in the amount of sales 
over a period of years with the change in the num- 
ber of stores over the same period of years, a semi- 
logarithmic chart will serve where the arithmetic 
will not, for it would not be logical to put two 
such different vertical scales on an arithmetic 
chart. 

In reports that use color, two different colors 
can be used to identify the two sets of data. For 
example, in Fig. 8, page 52, American Rolling 
Mill Company compares the quantity of produc- 
tion with net sales over a period of years. The 
left column of figures shows production in tons. 
The line was blue and so was the column of fig- 
ures. The scale at the right is net sales in dollars. 
The line was white and the column of figures was 
black on white. Color, in this instance, helped to 
simplify the chart. 

Two related items can also be compared on 
a combination, vertical bai-and-line chart. The 



LIVENING UP THE ANNUAL REPORT 



left column of figures identifies one set of facts and 
the right column another. Here, too, a proper 
relationship must be maintained between the two 
sets of figures to prevent distortion. Fig. 84, 
page 126, illustrating a comparison of current as- 
sets and net sales of Sylvania Electric Products 
Inc., shows a combination bar-and-line chart. 

CHARTING COMPARISONS 
BY PERCENTAGES 

In comparing trends of different but related items, 
the clearest results are obtained by establishing a 
base year for all items and letting the base year 
represent an index of 100 or 100%. This avoids 
the use of more than one scale. For all years 
other than the base year, the index or per cent is 
calculated by dividing the amount for the particu- 
lar year by the amount that represents 100 or 
100 cr o . Thus, all figures are reduced to a com- 
parable basis and all lines on the chart are related 
to the common, base line. Each trend may be 
portrayed by a different type of line, if color is not 
used, and if it is, by a differently colored line. 
For example, suppose earnings and taxes are to be 
charted for a series of years, beginning with 1935. 
The amount of earnings for 1935 will represent 
100% and the amount of taxes for that year will 
also represent 100%,. Each year's total earnings 
and taxes will be a percentage of their respective 
1935 figures. Numerous illustrations are given 
in Chapter 6. 

CHARTING COMPARISONS 
WITH INDEX NUMBERS 

Wherever company figures are compared with 
data for which an official or other accepted index 
is used, it is necessary to make a company index 
that is comparable with the official one. For ex- 
ample, suppose the trend of the company's sales is 
to be compared with the trend of industrial pro- 
duction in the nation as shown by the Federal Re- 
serve Board Index. In the FRB index, the 1935- 
1939 average equals 100. To make its chart, the 
company must construct its own sales index so 
that its average sales figures of the years 1935-1939 
also equal 100. 

CHARTING COMPARISONS 
ON A PER UNIT BASIS 

The significance of certain statistical data may be 
brought out better if the data are reduced to a 



unit basis rather than presented as total sums. 
Department stores frequently reduce classes of ex- 
penditure to a per-store basis and depict trends in 
that way. Similarly, certain items are often re- 
duced to a per-share basis for purposes of showing 
comparisons. F. W. Woolworth Co. once used 
a chart which showed average taxes per store and 
average taxes per share in each of a selected group 
of years. 

COMPARING WITH THE 
INDUSTRY AND THE NATION 

Comparisons of a company's performance with the 
situation in the industry as a whole, with related 
industries, with the country as a whole or with 
other pertinent or relative data may be brought 
out clearly in a chart. Such comparisons are nec- 
essarily limited to data for which the comparable 
statistics are available. As previously indicated, 
it is necessary to make the company's index num- 
ber correspond with the outside index that is be- 
ing used. The semi-logarithmic chart is useful in 
this type of comparison. 

Here are some company figures that have been 
compared in chart form with industry or nation- 
wide indexes: 

1. Production. Caterpillar Tractor Co. pre- 
sented a chart comparing Caterpillar man-hours 
worked with the Federal Reserve Board Index of 
all industrial production. See Fig. 9, page 53. 

Philip Morris & Co., Ltd., Inc., compared its 
own index of production of cigarettes with that 
for the industry. See Fig. 6, page 51. 

2. Sales. Monsanto Chemical Co. compared 
its sales index (adjusted for seasonal variation) 
with the index of business activity of the Guaranty 
Trust Company. 

Caterpillar Tractor Co. compared its sales in- 
dex with the Federal Reserve Board Index of 
industrial production. 

Link-Belt Co. compared the Link-Belt sales in- 
dex with the Federal Reserve Board Index of dur- 
able-goods production. See Fig. 21, page 62. 

Bridgeport Brass Co. compared its index of 
yearly shipments of mill products with a compar- 
able index of brass-industry shipments, steel-ingot 
production and the Federal Reserve Board In- 
dex of durable-goods production. See Fig. 31, 
page 67. 

Federated Department Stores, Inc., showed the 
percentage of sales of their stores to total depart- 
ment-store sales in the same cities. The chart was 

209 



LIVENING UP THE ANNUAL REPORT 



prepared from census and Federal Reserve Bank 

figures. 

3. Prices. Corning Glass Works compared 
the price index of all its products with the index 
of all manufactured goods in the United States. 
See Fig. 38, page 69. 

Inland Steel Co. showed how steel held the 
price line during and after the war years, by com- 
paring steel prices, wholesale prices and retail 
prices. For retail prices, it used the U. S. Depart- 
ment of Commerce statistics, for wholesale and 
steel prices, the LI. S. Bureau of Labor Statistics 
figures. See Fig. 41, page 70. 

Hunt Foods, Inc. compared cost of selected raw 
fruits and vegetables with retail prices. The data 
were furnished by the U. S. Department of Labor 
and California Cooperative Crop Service. See 
Fig. 45, page 77. 

Imperial Oil Ltd. compared gasoline wholesale- 
price index (without Federal and provincial gaso- 
line taxes) with the general wholesale-price index. 
See Fig. 37, page 69. 

4. Utility cost and cost of living. Columbia 
Gas & Electric Corporation compared the cost of 
residential gas with the cost of living, using the 
Bureau of Labor Statistics Consumer Price Index. 
See Fig. 39, page 69. 

Georgia Power Company compared residential 
KWH usage and price with national averages. 
See Fig. 32, page 67. 

5. Employee earnings. General Motors Cor- 
poration compared the hourly rate of earnings of 
its employees with the average hourly earnings for 
all manufacture, using the index of the Bureau of 
Labor Statistics. See Fig. 109, page 145. 

Inland Steel Co. and Sharp & Dohme, Inc., com- 
pared earnings of their workers with the cost of 
living. They used the LT. S. Department of Labor 
Statistics Cost of Living Index. See Figs. 120 
and 121, page 151. 

Seattle Gas Co. compared employee earnings, 
company earnings and the cost of living in Seattle. 

Keystone Steel & Wire Co. compared average 
hourly wages paid by it with the average paid by 
the steel industry. Industry figures were supplied 
by the American Iron and Steel Institute. 

6. Company earnings. Vick Chemical Co. 
compared its earnings with a theoretical share 
composed from the Dow- Jones Industrial [stock] 
average. See Fig. 66, page 98. 

210 



For a select list of current indexes, see Practical 
Business Statistics, p. 397, by Croxton and Cow- 
den, published by Prentice-Hall, Inc., New York. 
Government Statistics for Business Use, edited by 
Philip M. Flauser of the Department of Com- 
merce and William R. Leonard of the Bureau of 
the Budget, published by John Wiley & Sons, New 
York, 1946, may be helpful in locating source 
data for the type of comparisons discussed in this 
paragraph. 

WHY SOME CHARTS FAIL 

Many of the line and bar-charts that have ap- 
peared in annual reports have failed in their pur- 
pose of giving at-a-glance stories or making facts 
clearer. The usual reasons for failure are: 

1. Not legible. A chart may lose clarity if it 
is superimposed oh a dark photograph or pre- 
sented in colors that obscure the facts. For ex- 
ample, a yellow bar-chart on a white background, 
with numbers indicated in white, proved prac- 
tically useless in one annual report. 

2. Too complicated. Some outstandingly 
good charts, from the standpoint of exactness and 
accuracy, have defied readers to do more than 
glance at them because they showed too many 
factors. For example, a line chart of a well- 
known industrial company compared six indexes 
relating to prices. 

3. Too little variation. If the data are fairly 
constant, they do not lend themselves to line or 
bar-chart treatment. In some instances, the ab- 
sence of variation is the point made by the chart, 
but here the constant line is usually compared 
with another, fluctuating one. 

4. Figures not well indicated. The figure 
guides on line and bar-charts should be readily 
understandable as well as large enough to be read. 
Their explanation should preferably be given im- 
mediately over the vertical scale, or immediately 
below a horizontal scale, to- show what is repre- 
sented — millions of dollars, number of units, per 
cents and the like. Of course, if the figure is a 
simple number, such as number of employees or 
of stockholders, the title of the chart may be suf- 
ficient for clarity. 

5. Labeling incomplete. When two or more 
series are plotted on the same chart, what the area 
between the two plotted lines represents, if any- 
thing, should be clearly indicated by captions. 
Assume that on a particular chart one line shows 
the trend of net income over ten years and another 



__ 






LIVENING UP THE ANNUAL REPORT 



line shows income from all sources, both in mil- 
lions of dollars; the area between the two lines 
should be labeled "Total Outgo," or the chart will 
be confusing. 

6. Appearance uninteresting. An otherwise 
satisfactory chart may appear too bleak or too 
static to invite attention. This difficulty may be 
overcome by adding symbols or other illustrations 
to humanize the chart or by using other accepted 
techniques of display. A provocative, informa- 
tive headline will almost always catch the eye and 
interest the mind. 

7. Type too small. Sometimes a company 
will use a wall chart or other lame-sized diaarram, 
but in brinoins; it down to a size suitable for the 
report, will reduce the markings so far that they 
become illegible. 

AIDING THE READER 

TO INTERPRET THE CHARTS 

Even a simple chart may be made clearer by a 
brief explanation of how it should be read. Sev- 
eral years ago, Eastman Kodak Company used 
some line charts to show the trend of weekly earn- 
ings of factory employees as compared with the 
trend of the cost of living in Rochester and to 
show other wage data. The chart was based upon 
index numbers. The report included the fol- 
lowing brief paragraph to help the reader inter- 
pret the charts: 

The amounts are expressed by index numbers, with 
the year 1915 equal to 100, thus permitting a clearer 
comparison between the different curves. The dis- 
tance of any given point above or below the horizon- 
tal line representing 100 indicates the percentage of 
fluctuation from the level of 1915, the earliest year for 
which comparable information is available. 

It may be assumed that a reader who is not 
trained in statement analysis and graphs and statis- 
tics, is going to accept a chart at its face value. It 
is therefore necessary for management to be espe- 
cially careful to present an explanation if the chart 
requires interpretation. For example, certain in- 
creases or decreases cannot be interpreted as desir- 
able or undesirable until their cause is known. 
An increase in inventories may be advantageous if 
stocks have previously been inadequate or if heavy 
purchases have been made against a rising market 
or in anticipation of a period when goods will not 
be available. On the other hand, the increase in 
inventories may have resulted from unwise pur- 
chasing policies or from a decline in sales. The 



text treatment of inventories should point out the 
significance of inventory changes. 

Similarly, the text or the title of the chart 
should clarify any terms that the untrained reader 
does not readily understand. A chart of net 
worth will mean nothing to most readers unless 
the text or the chart indicates what "net worth" 
consists of as used in the chart. 



SUBJECTS TREATED WITH 
MISCELLANEOUS PICTORIAL EFFECTS 

Sketches, drawings, charts and cartoons have been 
employed where photographs would not serve, 
and for variety where photographs might have 
served. They have been used effectively for the 
following purposes: 

1 . T° show the organization of the company (see 
page 21). 

2. To sketch contemplated construction. 

3. To show structural diagram of a product. 

4. To explain the flow of a manufacturing proc- 
ess. 

5. To tell the evolution of a product (see page 
170). 

6. To show who uses the company's product. 

7. To illustrate media used in advertising (see 
pages 172 and 174) . 

8. To simplify financial statements (see pages 
122 and 123). 

STATISTICAL MATERIAL 
IN ANNUAL REPORTS 

A great variety of statistical material, in addition 
to financial statements, simplified financial state- 
ments and schedules in support of items in such 
statements, is presented in annual reports. Statis- 
tics may be included in a special section of the re- 
port or they may be presented in the body of the 
narrative to amplify some comment in the text. 
See page 197 for pointers on using statistics in the 
narrative. 

Tables, like charts and graphs, give the reader 
an opportunity to see growth, changes, trends and 
relationships. A representative collection of tab- 
ular matter suitable for annual reports to stock- 
holders is presented as a part of each of the chap- 
ters dealing with ideas for reporting on specific 
subjects. 

The skeleton tables included in this book will 
be found especially helpful to accounting and 

211 



LIVENING UP THE ANNUAL REPORT 



statistical departments that are asked to suggest 
tables and furnish statistical data. 

How many years should be included in any 
table is optional with the company. A safe rule 
to follow is to give as many years as are necessary 
to draw a correct conclusion from the comparative 
figures. So-called "statistics of progress" (see 
page 116) should be given for at least five years. 
Since, for some time to come, five-year compari- 
sons will take in the war years, it may be advisable 
in some cases to give longer records or to include 
an average for the five war years 1942-1946 and an 



average for the five pre-war years 1937-1941. 
Ten-year comparisons are wanted by many ana- 
lysts, as shown in the survey at page 226, and are 
frequently given. The U. S. Steel Corporation 
carries its "Operating Story" and its "Financial 
Story," which are statistics of progress, back to the 
beginning of the company in 1902. Just as charts 
have been presented in which company figures are 
compared with industry and nation-wide figures, 
so tables of the same data may be presented. The 
list of such charts at page 209 offers suggestions 
for statistical presentations. 






212 



CHAPTER 17 



SURVEYS OF OPINIONS 
ON ANNUAL REPORTS 



With the development of the annual report into a 
medium for bettering stockholder, employee, and 
public relations, it A\as natural that attention 
should be given to the interests of those who re- 
ceive the report. It was equally logical that sci- 
entific methods of research should be used, in 
most cases, in getting these opinions. 

SURVEYS COVERED 

An attempt has been made to include in this book 
comprehensive information on surveys that have 
been made to determine what the annual report 
should include. These surveys fall into three 
groups: 

1. Surveys by corporations addressed to their 
own stockholders. Such surveys have been 
made by the following corporations: 
Allegheny Ludlum Steel Corporation (see 

page 215). 
West Virginia Pulp and Paper Company 

(see page 217) . 
The Borden Company (see page 217) . 
General Foods Company (see page 219) . 

2. Surveys by independent agencies addressed 
to representative securityholders. Three 
such surveys are covered in this book: 
"What the stockholders want to know" by 

Ralph Gates (see page 221) . 

The Balasny survey (see page 223) . 

A survey of reading habits of those who 
receive annual reports (see page 224) . 
This was part of a more comprehensive 
survey conducted by a large corporation 
whose name cannot be divulged. 

3. Surveys by corporations and independent 
agencies addressed to security analysts. 
Two such surveys are included in this book: 
Consolidated Edison Company (see page 

225) . 
M. K. Mellott & Co. (see page 226) . 

For references to employee surveys, see page 
250. 



HOW TO USE 
THE SURVEYS 

The surveys mentioned above are presented in 
full so that those using this book may draw their 
own conclusions as to how they should be guided 
by other peoples' studies. 

Practically every question that might arise in 
the minds of executives as to stockholders' inter- 
ests has been covered in the surveys reported. 
The responses, in most cases, have broad applica- 
tion, for stockholders in all companies have more 
or less similar interests. An example can be cited 
from three totally different surveys to support this 
conclusion. In the Balasny report (page 224) , 
stockholder interests in employee relations were 
shown to be surprisingly low: 45% wanted a statis- 
tical analysis of employee relations; 21% did not 
want it; 34% were indifferent. In the same sur- 
vey only 15% wanted graphs on employees. In 
the General Foods survey (page 220) only 26% 
replied that they were interested in employee rela- 
tions and the subject was tenth on a list of twenty. 
In the Allegheny Ludlum survey, employee rela- 
tions was fifteenth on a list of thirty-three subjects. 

The above example can also be used to demon- 
strate why surveys must be used with discretion. 
Although it may be true that stockholders are not 
strongly interested in employee relations, from the 
standpoint of the corporation it may be highly de- 
sirable that the stockholders, who constitute part 
of the public, be aware of the company's relations 
with its employees. What the company can learn 
from the survey is that it must make the section of 
the report dealing with employee relations espe- 
cially interesting and attractive in order to gain 
reader interest. 

Another point to be made about annual-report 
surveys is that stockholder attitudes change as a 
result of the type of reports companies make avail- 
able to them. For example, if a stockholder who 
owns stock in five companies receives from three 
reports containing information on research in de- 

213 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



veloping products, he will be likely to look for 
this type of information in the reports of the other 
two companies. Thus, as more and more com- 
panies make available comprehensive, modern, 
understandable annual reports, stockholders may 
become more and more interested in subjects in 
which they now manifest comparatively little con- 
cern. 

THE MAILED SURVEY 

Most surveys of stockholder opinion are mailed to 
stockholders shortly after they have received an 
annual report. A company thus obtains fresh re- 
actions to a particular report that can guide it in 
preparing future reports. There is also the pre- 
issue mailed survey, which seeks to determine 
what the stockholder would like to see in a forth- 
coming annual report. This method has the ad- 
vantage of arousing interest in the report and of 
affording an opportunity to get timely suggestions. 

General Foods Corporation used the pre-issue 
questionnaire for four successive years, 1941-1944. 
The company, however, does not feel that the pre- 
issue survey is superior to the post-issue survey. 
Nor does it recommend successive surveys in nor- 
mal times. It conducted its four annual surveys 
during the war years when conditions were chang- 
ing rapidly and stockholder attitudes were affected 
by economic adjustments. 

General Foods' experience indicates that a short 
questionnaire is preferable to a long one. One 
year the company sent a preliminary twenty-two- 
question survey to a small cross-section of stock- 
holders and solicited their cooperation in drafting 
the final questionnaire. As a result of the test, 
the final form contained ten questions of broad 
scope and ample space for the stockholder to ex- 
press his own thoughts, "boosts," and "knocks" for 
GF. The results of this final questionnaire are 
given at page 219. 

On the validity of mailed, stockholder surveys, 
the remarks of the Allegheny Ludlum Steel Cor- 
poration in reference to its own questionnaire 
(page 215) are worth noting. It stated in a 
newspaper release: " * * * while the response 
was gratifyingly heavy [27%], the opinions con- 
tributed are conclusive only for the group answer- 
ing. They actually do not, except by assumption, 
apply to the non-answering group of stockholders, 
as would have been the case with a 'random 
sampling' of equal numerical strength. Never- 
theless, a 27% response indicates a high degree of 
214 



active personal interest on the part of the share- 
holders and the opinions of such a large group 
may well be taken as being broadly representative 
of stockholders as a whole." 

THE PERSONAL 
INTERVIEW POLL 

General Foods Corporation, always a pioneer in 
stockholder relations, recently decided to find the 
reactions of its women stockholders to its annual 
report and its Stockholder News through a per- 
sonal-interview poll. It employed a professional, 
opinion-service organization to conduct a survey 
among women stockholders in five cities in differ- 
ent parts of the country. The purposes of the 
survey were to: (1) Discover the extent to which 
women had read the April 1947 edition of Stock- 
holder News and the 1947 annual report, (2) 
Find out which features were liked best in the 
Stockholder News, (3) Determine the reaction of 
women readers to these publications. 

In the survey, the interviewers saw 358 women 
stockholders, reaching one out of each three 
names supplied by the company. The results of 
the survey, so far as they relate to the annual re- 
port, are given on page 220. 

TELLING STOCKHOLDERS 
THE RESULTS OF SURVEYS 

After a survey has been made among the stock- 
holders, it is advisable to refer to the results of the 
survey in the next report and to indicate how they 
are reflected in the report. Allegheny Ludlum 
Steel Corporation included the following state- 
ment on the first page of the annual report that 
followed its survey: 

Earlier this year the stockholders of Allegheny Lud- 
lum Steel Corporation were asked in a survey, to in- 
dicate the kind of annual report that they would like 
to have. It was found that many wished to be told 
more about the company's position in the steel in- 
dustry, and its products, outlook and research, and to 
be given a perspective on dividends and earnings 
broader than provided by the customary two-year 
comparisons. Pictures and charts were desired to 
help visualize the total presentation most readily, yet 
the report as a whole was not to be too long or too 
elaborate. A number suggested a digest or thumb- 
nail summary of basic facts as being most serviceable 
to them. All the foregoing suggestions have helped 
to shape this year's report. 

It should be added that the benefits of this survey 






SURVEYS OF OPINIONS ON ANNUAL REPORTS 



will continue to be reflected in other practical ways, 
for the stockholders responded with a contribution of 
ideas and opinions that merit closest analysis for fu- 
ture use. The management extends its sincere thanks 
to the stockholders for their generous support of the 
undertaking. 

THE ALLEGHENY LUDLUM STEEL 
CORPORATION SURVEY 

The survey conducted by this company at the 
close of 1944, prior to the preparation of the an- 
nual report for that year, gave stockholders the 
opportunity to comment on the company's an- 
nual-report and managerial policies. Nearly 
3300 of the company's 12,000 stockholders, or 
27%, replied. They indicated in no uncertain 
terms that they liked the idea of being considered 
partners in the enterprise, regardless of the size of 
their holdings, and noted their preferences on 
thirty-two suggested topics as well as on other as- 
pects of the report. 

The questionnaire consisted of a four-page let- 
ter. The first page contained the letter repro- 
duced below, pages 2, 3 and 4 contained the ques- 
tions with boxes to be checked. The results of 
the survey are indicated below. 

Dear Fellow Stockholder of Allegheny Ludlum Steel 
Corporation: 

In a lew weeks, the management of your company 
will begin preparation of the 1944 annual report 
of the Allegheny Ludlum Steel Corporation. We 
would like to make this an outstanding report from 
the point of view of subject matter, clarity and inter- 
est. For these reasons, w r e are seeking your assistance 
through the enclosed questionnaire which is being 
sent to each of the company's 12,000 stockholders. 

Will you give us your help on each subject listed 
by simply checking the items that best express your 
opinion, returning the questionnaire in the enclosed, 
self-addressed envelope that requires no stamp? 

We hope you will express your remarks freely and 
frankly in the space provided, for such an open ex- 
pression of opinion will help us give you the informa- 
tion concerning the company in which you are most 
interested. 

We will appreciate the prompt return of the ques- 
tionnaire. 

Very truly yours, 

(signed) E. J. Hanley, 
Secretary-Treasurer 

I. Please check below the subjects you would 
like to have discussed in the 1944 annual re- 
port of the Allegheny Ludlum Steel Corpora- 
tion. 



Rank 


Number 


Subject 


1 


2263 


Outlook for 1945 for Allegheny 
Ludlum 


2 


1939 


Position of Allegheny Ludlum in 
steel industry 


3 


1817 


Dividend policy 



3 


1817 


Dividend policy 


4 


1633 


Earnings 


5 


1615 


Research and new products 


6 


1559 


Company products 


7 


1369 


Outlook for 1945 for business 
general 


8 


1367 


Postwar production plans 


9 


1232 


Products manufactured 


10 


1216 


Competition problems 


11 


1009 


Reconversion problems 


12 


885 


Taxes 


13 


870 


Legislation affecting steel in- 
dustry 


14 


837 


Allegheny Ludlum war effort 


15 


817 


Employee relations 


16 


809 


History of Allegheny Ludlum 


17 


741 


Salaries and wages 


18 


739 


Plant modernization program 


19 


688 


Postwar employment plans 


20 


671 


Sales 


21 


661 


Veterans reemployment plans 


22 


598 


Contract termination 


23 


593 


Manufacturing processes 


24 


588 


Officers and directors 


25 


549 


Depreciation policies 


26 


421 


Advertising 


27 


421 


Renegotiation of contracts 


28 


420 


War production cut-backs 


29 


419 


Pricing problems in steel 


30 


414 


Distribution system 


31 


396 


Inventories and methods of 
evaluation 


32 


284 


Safety record 


33 


63 


Others (please specify) 



II. In your opinion, are steel manufacturers gen- 
erally making (Check one) 



Rank Number Per cent 

1 824 28.5 

2 715 24.8 

3 690 23.9 



657 



Total 2886 



22.8 



100.0 



Comment 
Less profits? 
Don't know 
More profits than 

before the war? 
About the same 

profits? 



III. What is your impression of the importance of 
research to a specialty steel company such as 
Allegheny Ludlum Steel Corporation? 

215 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



Rank 

1 
2 



Number 
2573 
353 
N 



Total 2940 



Per cent 

87.5 

12.0 

0.5 



100.0 



Comment 
Very important 
Important 
Not so important 



VIII. Do you think the annual report should con- 
tain pictures of any of the following aspects 
of Allegheny Ludlum Steel Corporation? 



IV. What do you think of the new radio program 
of Allegheny Ludlum Steel Corporation given 
Sunday nights under the title "Steel Hori- 
zons"? (Check one). 



Rank 
1 



Number 

1454 

815 



PLANTS 

Per cent 
64.1 
35.9 



Comment 

Yes 

No 



Rank 


Number 


Per cent 


Comment 


1 


1924 


65.3 


Never heard it 


2 


821 


27.9 


Good program 


3 


182 


6.2 


Fair 


4 


17 


0.6 


Don't like it 



Total 2269 100.0 

EMPLOYEES 



Rank 
1 

2 



Number 

1160 

380 



Per cent 
75.3 
24.7 



Comment 

No 
Yes 



Total 2944 



V 



100.0 



Would you read carefully a quarterly news 
letter sent to stockholders, including pictures 
of plants, processes and personalities? 

Rank Number Per cent Comment 

1 2188 78.8 Yes 

2 587 21.2 No 



Total 1540 100.0 

MANAGEMENT 



Rank Number 

1 1098 

2 598 



Per cent 
64.7 



Comment 

No 
Yes 



Total 2775 



100.0 



Total 1696 100.0 

PRODUCTS 



VI. Do you think the annual report of Allegheny 
Ludlum Steel Corporation for 1944 should be 
(Check one) 



Rank Number 

1 2035 

2 535 



Per cent 
79.2 

20.8 



Comment 
Yes 

No 



Rank Number 



1 



1406 



503 



Per cent 

58.7 

21.0 



Comment 

About the same as 

1943? 
More elaborate 

than that of 1943? 



Total 2570 



100.0 



IX. What do you do with annual reports of Alle- 
gheny Ludlum Steel Corporation? 



3 


485 


20.3 


Shorter than that of 


Rank 


Number 


Per cent 


Comment 








1943? 




1 


1390 


47.2 


Read and keep for 
future reference 


Total 


2394 


100.0 






2 


1117 


38.0 


Read and throw in 


VII. Do you think the annual 


reports of Alleg 


leny 








waste basket 


Ludlum Steel Corporation are (Check 
or more). 

Rank Number Per cent Comment 


one 


3 
4 


374 
63 


12.7 
2.1 


Read and pass on 

to others 
Don't read them 


1 


1166 


39.0 


Satisfactory in 
ent form? 


pres- 


Total 


2944 


100.0 




2 


933 


31.2 


Interesting? 




XL Remarks: [Note. X ar 


id XI asked for com- 


3 


313 


10.5 


Clear? 




mendations, 


criticisms 


and remarks.] 


4 


132 


4.4 


Too general? 




XII. If 


you do not give your 


name, will you please 


5 


118 


3.9 


Too technical? 




indicate your sex? 




6 

7 


110 
76 


3.7 
2.5 


Too formal? 
Dull? 




Rank 


Number 


Per cent 


Comment 


8 


71 


2.4 


Too detailed? 




1 


2335 


75.6 


Men 


9 


71 


2.4 


Vague? 




2 


755 


24.4 


Women 


Total 


2990 


100.0 






Total 


3090 


100.0 


■ 


216 



















SURVEYS OF OPINIONS ON ANNUAL REPORTS 



THE WEST VIRGINIA 

PULP & PAPER CO. SURVEY 

This company questioned its stockholders on the 
1945 annual report with the following double 
postcard: 

The 706 responses were tabulated as follows: 

Read it all 522 

Read about half 77 

Glanced through it 62 

Did not read it 8 

No comments 23 



Found it interesting 635 

Fairly interesting 25 

Of little interest 1 

Saving it 466 

Giving it away 91 

Discarding it 61 

No disposition noted 64 



THE BORDEN SURVEY 

A postcard questionnaire was sent along with the 
1945 report by The Borden Company to deter- 



Dear Stockholder: January 30, 1946 

You now should have received your copy of our Annual Report for the fiscal 
year ended October 31,1 945, which we mailed several days ago. We hope you have 
had an opportunity to read this Report and will spare a few moments to fill out this 
questionnaire to give us your reactions to it. 

Our 1945 Report reflects some of the suggestions made by stockholders who 
returned last year's questionnaire. It contains a series of photographs, more graphic 
charts and more information about our company's operations. 

Only you, and other owners, can tell us whether we have included the type of 
information you want and whether it is presented in the manner you prefer. So 
please check the questions on the reply post card and, under "Comments," state 
frankly what you like or don't like about the 1945 Report. Your co-operation will be 
both helpful and stimulating. 

Cordially, 

DAVID L LUKE, JR., President 

P.S. We'll greatly appreciate receiving ... . ... . . B ■ ■ D -. 

i -i I .. t West Virginia Pulp and Paper Company 

your signed proxy it you haven t yet 3 r r r ' 

mailed it and if you cannot attend the 230 Park Avenue 

Annual Meeting in person. — D.L.L., Jr. New York 17, New York 



Dear Mr. Luke: 

Here are my reactions to the 1945 Annual Report: — 
I read it all ... . read about half ... glanced through it ... . did not read 
I found it interesting. . . . fairly interesting .... of little interest ... 
I am saving my copy .... giving it away .... discarding it ... . 

COMMENTS AND SUGGESTIONS' 



217 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



mine how much of the report stockholders read 
and what features were of particular interest. 
The card read as follows: 

Questionnaire on Annual Report 

To Borden Stockholders: 

In preparing our Annual Report we found it dif- 
ficult to anticipate all of the questions that might 
occur to members of a stockholder family as large as 
ours. To assist in providing for the interests of a 
majority of stockholders, we have prepared the at- 
tached questionnaire to guide us in the prepara- 
tion of our next Annual Report. Will you be good 
enough to check the questions listed and drop this 
card in the mail for me? Thank you. 

THEODORE G. MONTAGUE, 

President 

I. How much of the Report did you read? 
All Most Some None 

11. Did the Report strike you as being: 
Long Short Just Right 

Iff. Please check the features in which you were par- 
ticularly interested: 
President's Message, (p. 3) 
President's Comments. (pp. 4-16) 
Pictures. 
Charts. 

Audited Financial Statements, (pp. 18-21) 
5-Year Condensed Statement, (p. 26) 
Special Articles, (pp. 24, 25, 27, 29) 
Products Directory, (pp. 30-31) 

fV. What special subjects would you be interested in 
having covered in future Annual Reports? 

A tabulation of the returns is given below. 

1. How much of the report did you read? 

Number Percentage 

All 1,042 51.89% 

Most 640 31.87 

Some 283 14.09 

None* 26 1.30 

No answer given 16 0.85 

Total 2,007 100.00% 

* Respondents answering "None" to the above 
question: 

Number Percentage 

No reason given 18 69.23% 

Report "too long" .... 8 30.77 

Total 26 100.00% 

218 



2. Did the report strike you as being: 

Number 



Long 

Short 

Just right 

No answer given 

Total 



519 

15 

1,326 

147 

2,007 



3. Please check the features in which 
ticularly interested: 

Number 

1,127 

1 ,255 

1,060 

1,035 



President's message . . . 

President's comments . 

Pictures 

Charts 

Audited Imancial state- 
ments 

5-year consolidated 
statement 

Special articles 

Products directory .... 

None stated 

Total 



1,258 



Percentage 

25.84% 

0.81 
66.03 

7.32 

100.00% 
you were par- 

Percentage 

12.65% 
14.08 
11.90 
11.62 

14.12 



1,227 


13.77 


842 


9.45 


990 


11.11 


115 


1.30 



8,909 



100.00% 



Number who found all features of in- 
terest 325 16.19% 

Respondents who found only one feature of par- 
ticular interest: 



President's message . . . 

President's comments . 

Pictures 

Charts 

Audited financial state- 
ments 

5-year consolidated 
statement 

Special articles 

Products inventory . . . 

Total 



Number 


Percentage 


10 


9.90% 


9 


8.92 


16 


15.84 


10 


9.90 



28 



27.72 



16 


15.84 


4 


3.96 


8 


7.92 



101 



100.00% 



Average number of respondents who found the fea- 
tures of particular interest: 

President's message 1 in 8 

President's comments 1 in 7 

Pictures 1 in 8 

Charts 1 in 8 

Audited financial statements 1 in 7 

5-year consolidated statement 1 in 7 

Special articles 1 in 11 

Products directory 1 in 9 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



Features of particular interest to stockholders listed 
in the order of preference: 

1. Income and dividends. 

2. Sales. 

3. Taxes. 

4. Operating report. 

5. Working capital. 

6. Other information, including: new products, 
expansion plan, future outlook, worker rela- 
tions, income breakdown, new financing, re- 
search. 

7. Current assets. 

8. Current liabilities. 

9. Reserves. 

10. Administrative matters. 

1 1 . Property and equipment. 

12. Capital stock and stockholders. 

GENERAL FOODS FOURTH 
ANNUAL STOCKHOLDER SURVEY 

General Foods Corporation's fourth annual ques- 
tionnaire went to all preferred and common stock- 
holders. The questions that were asked were de- 
cided upon after a pilot study had been made 
among a group of 2113 stockholders, representing 
a cross-section of the company's shareholders (see 
page 214). Replies to the final survey were re- 
ceived from 4780 stockholders. Of the replies, 
63.9% Avere from men, 34.0% from women, 0.6% 
from joint-owners and 1.5% from unidentified 
classes of owners. The questions and the replies 
are tabulated below. 

TABLE 1 

WHAT STOCKHOLDERS WANT INCLUDED 
IN THE 1944 ANNUAL REPORT 

From Question #1: "Do you wish to have the GF 
Annual Report for 1944 contain . . ." 



No. 



% 



a. Text 


No. 


Crf 
/O 


More text information than in 






former years 


429 


9.0 


About the same amount of text 






information as in former 






years 


3,318 


69.4 


Less text information than in 






former years 


510 


10.7 


No preference 


6 


.1 


Don't know — not stated 


517 


10.8 


Total interviews 


4,780 


100.0 



b. Charts and Pictures 






More charts and pictures than 






in former years 


995 


20.0 


About the same number of 






charts and pictures as in 






former years 


2,751 


57.6 


Fewer charts and pictures than 






in former years 


506 


10.6 


No preference 


6 


.1 


Don't know — not stated 


562 


11.7 


Total interviews 


4,780 


100.0 



TABLE 2 

READERSHIP OF 1943 ANNUAL REPORT 

From Question #2: "Did you read all of your copy 
of the 1943 General Foods Annual Report?" 



Read all 


3,239 


/o 

67.7 


Did not read all 


1,342 


28.1 


Don't know — not stated 


172 


3.6 


New stockholder 


27 


.6 


Total interviews 


4,780 


100.0 


TABLE 3 






PART READERSHIP 






om Question ^3: "If you did not 


read it a 


11, do 


you remember about how much 


of it yo 


u did 


read?" 








No. 


% 


Read most of it 


91 


6.8 


Read % of it 


35 


2.6 


Read y 4 of it 


48 


3.6 


Read \/ 2 of it 


170 


12.7 


Read % of it 


24 


1.8 


Read \/ A of it 


17 


1.3 


Read some of it 


34 


2.5 


Read very little of it 


50 


3.7 


Glanced through it 


101 


7.5 


Read financial statements 


174 


13.0 


Read topics of interest 


118 


8.8 


Read earnings, taxes, dividends 


26 


1.9 


Read charts, pictures, tabulations 


18 


1.3 


Read none of it 


23 


1.7 


Don't know — not stated 


456 


34.0 



Total who did not read all of 1943 
Annual Report 

TABLE 4 



1,342 100.0 



MOST INTERESTING SUBJECTS FOR NEXT 
GF ANNUAL REPORT 

From Question #4: "Again this year we ask you to 
check the five subjects you would be most in- 

219 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



terested in reading about in 
Report." 



lie next GF Annual 





No. 


% 


Post-war plans and prospects 


.'5,079 


64.4 


Earnings 


2,835 


59.3 


Dividends 


2,717 


56.8 


Research 


1,781 


37.3 


Unfavorable news about GF 


1,487 


31.1 


Consumer relations 


1,376 


28.8 


Products 


1.358 


28.1 


Policy governing new company ac- 






quisitions 


1,334 


27.9 


Taxes 


1,306 


27.3 


Employe relations 


1.272 


26.6 


Union relations 


1,06 1 


22.3 


Effect of wartime restrictions 


1,055 


22.1 


Advertising 


838 


17.5 


Sales 


801 


16.8 


What GF does to promote nutrition 


718 


15.0 


Raw materials and supplies 


609 


12.7 


GF's war efforts 


464 


9.7 


Containers 


432 


9.0 


Others 


161 


3.4 


Not stated 


94 


2.0 


Total interviews 


4,780 


100.0 


TABLE 5 







PROPORTION WHO READ THE FINANCIAL 
PAGES OF NEWSPAPERS 

From Question #5: "Do you read the financial pages 
of newspapers?" 



No. 



Read financial papers: 

Regularly 

Frequently 

Occasionally 

Seldom 
Do not read financial papers 
Not stated 



% 



2,740 


57.3 


1,011 


21.2 


587 


12.3 


317 


6.6 


4 


.1 


121 


2.5 



Total interviews 



4,780 100.0 



TABLE 6 



PROPORTION WHO READ SPECIALIZED 
FINANCIAL PUBLICATIONS 

From Question #6a: "Do you read specialized finan- 
cial publications? 



Read specialized financial publica- 
tions 

Do not read specialized financial 
publications 

Not stated 

Total interviews 
220 



No. 


/o 


2,318 


48.5 


2 226 


46.6 


236 


4.9 



4,780 100.0 



TABLE 7 
PUBLICATIONS READ 



From Question $:6b: " (If 'yes') 
names of these publications." 

Wall Street Journal 

Financial World 

Barron's 

Magazine of Wall Street 

Standard & Poor's 

Journal of Commerce 

United Business Service 

Babson Report 

Forbes 

Moody's 

Boston News Bureau 

Business Week 

Kiplinger Letter 

Others 

Various 

Don't know — not stated 

Total reading specialized financial 
publications 

TABLE 8 



Please write in the 



No. 


% 


762 


32.9 


514 


22.2 


387 


16.7 


369 


15.9 


210 


9.1 


178 


7.7 


147 


6.3 


120 


5.2 


116 


5.0 


82 


3.5 


67 


2.9 


50 


2.2 


50 


2.2 


430 


18.6 


76 


3.3 


179 


7.7 



2,318 100.0 



OPINIONS ON STOCKHOLDER PROMOTION 
OF GF PRODUCTS 

From Question #7a: "In normal times — when gro- 
cers' stocks of GF products are in adequate sup- 
ply — do you believe our management should en- 
deavor to get more GF stockholders to use more 
GF products in their own homes . . . and to 
urge GF stockholders to promote the use of 
GF products among their friends and acquaint- 
ances?" 



No. 



% 



Believe company should urge stock- 
holders to use and promote GF 
products 

Believe such action by company not 
particularly desirable 

Don't know — not stated 

Total interviews 



3,803 79.6 



708 
269 

4,780 



14.8 
5.6 

100.0 



GENERAL FOODS PERSONAL POLL 
OF WOMEN STOCKHOLDERS 

The personal poll of General Foods women stock- 
holders, described at page 214, brought out the 
following data: 

Geneva! readership 
Of the total 358 contacts, 40% of the women 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



stockholders had read something in the annual 
report. (Opinion Research Corporation 1 in a 
study of stockholders in general found that 68% 
of all women stockholders either read annual re- 
ports hurriedly or not at all. This compares with 
the General Foods total annual-report nonreader- 
ship of 60%.) 

When the 60% who had read nothing were 
asked why they had not read anything in the re- 
port, their replies were as follows: 

Not interested 22% 

Taken care of by husband or other 

person 14 

Not enough time 14 

Didn't receive 6 

Can't read (bad eyesight) 2 

No report 2 

Total 60% 

The back cover attracted far more attention — 
83% — than any picture or feature inside the re- 
port. The spread, with pictures of General 
Foods executives, came in for the second highest 
noting. The average noting for the pictures on 
those pages was 60%. 

General reaction of readers 

A majority of women who had read something 
in the annual report had a favorable reaction to it. 
Some were critical or uncertain of their reactions. 

Favorable 68% 

Critical 15 

Uncertain 14 

No report 3 

Total 100% 

89% of the report readers, when asked, "Do you 
believe that this report tried to give you a satis- 
factory picture of General Foods condition, or do 
you think it is incomplete in any way?" thought 
that it tried to give a satisfactory picture of Gen- 
eral Foods' condition. Only one woman thought 
it was incomplete and she was unable to say in 
what way it was incomplete. The remainder 

1 A survey of reports to stockholders was made in 1944 by 
Opinion Research Corporation. Another survey was under- 
taken in 1947. For the latter study, six reports representing 
different approaches were used. Stockholders of each company 
were personally interviewed. Each such stockholder was shown 
the report, asked what he read and didn't read, and why, and 
what he wanted from his company in the way of an annual re- 
port. The results of this survey are available only to member 
companies whose fees are pooled to cover the costs of the re- 
search. 



didn't know or were unable to say whether it was 
complete or not. 

When asked for suggestions to improve the re- 
port, almost three-fourths of the women were un- 
able to make any at all. 9% wanted it made 
shorter, but when asked directly, "Do you think it 
was too long?" 27% said "Yes." The remainder 
of the suggestions follow: 

None 72% 

Make it shorter 9 

Make it simpler 4 

More pictures 3 

Spend less money 2 

More about General Foods products . . 2 

Offer baskets 1 

Use all space 1 

Give ratio between assets and liabilities 1 
Put General Foods News and Annual 

Report together 1 

No report 4 

Total 100% 

THE GATES SURVEY 

The report on "What Stockholders Want in An- 
nual Reports," presented at the Financial Confer- 
ence of the American Management Association in 
January 1941 by Ralph Gates, 2 was one of the ear- 
liest surveys. The findings are still valid. The 
report described the results of a questionnaire 
sent to 1500 stockholders — small, representative 
cross-sections, typical of the total stockholder 
groups, picked from three entirely different kinds 
of businesses. The companies concerned were 
the General Foods Corpoiation, manufacturers of 
packaged foods, the Bridgeport Brass Company, 
manufacturers of industrial goods, and the Mc- 
Call Corporation, publishers. The questionnaire, 
which required thinking on the part of the recip- 
ients, brought a 40% return, an extraordinarily 
high percentage when it is recalled that most ques- 
tionnaires get from 6% to 10% replies. The 
stockholders to whom the questionnaire was sent 
had no way of knowing what companies were in- 
volved. 

The questions in the survey were designed to 
discover what stockholders did with reports, what 
style of report was acceptable to them, what sub- 
jects were of most importance to them, and what 
was their ability to understand the charts and 
curves that most annual reports contain. Here 



2 Financial Management Series No. 68, American Management 
Association. 

221 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



are some of the findings on these questions as re- 
ported by Mr. Gates. 

Do tliey read the report? 

What a stockholder does with a report when he 
receives it has always been a matter of conjecture, 
so the first item on the questionnaire was devoted 
to that all-important point. Here is the question 
and the results: 



56%. . . .How much taxes paid. 

56%. . . .Research plans and development. 

54%. . . .New investments in manufacturing 
and selling operations. 

54% ... .Employee relations (wages, em- 
ployment changes, etc.). 

41%.... Where company sells products or 
goods. 

30% .... Pictures of products. 

25%. . . .Where company buys material. 



When I get an annual report, I . . . 
. . .Read it thoroughly. 
...Glance through it, and throw it 

away. 
. . .Glance through it, and save it. 



46°' 

9Qcr/ 



-- (i 
20/ 

° /o • 



Don't give it much attention. 



I find most reports 1 receive . . . 
44%. . . .Difficult to understand. 
44%. . . .Interesting and instructive. 



I'" 
1A /o 



Not worth much attention. 



Annual reports I like best are . . . 

30% . . . .Financial statement and president's 
short letter. 
Detail story of company progress in 
addition to financial statements. 



70 a ' 
' " /o • 



Pictures? 

One of the most controversial ideas recently 
presented to management has been the suggestion 
that pictures be added to the annual report. Al- 
most everyone in business has expressed an opin- 
ion. Now the most interested person, the stock- 
holder, has been given the opportunity to give his 
opinions, for in the Survey of Stockholder Opin- 
ion he was asked to state: 

If a company sent me an annual report that 
was illustrated with pictures similar to the style 
of LIFE magazine, I would think the company 
was . . . (The stockholder could check more 
than one if he desired.) 



12%. 
22%. 
16%. 



. Undignified. 

. Modern and up-to-date. 

. Poorly managed. 

.Making an honest effort to make 

me understand company progress. 
.Trying to cover up something by 

diverting my attention. 

Subjects on which I would like to receive in- 
formation in a report are . . . 

89%. . . .Financial statements. 
62% Effect of war on business. 



14%, 



Where there are no dividends 

The company that pays no dividends has often 
contented itself with a close-mouthed statement 
of losses. That has been the best kind of report, 
from the viewpoint of management. But the 
viewpoint of the stockholders is quite the oppo- 
site, as shown by the answers to the proposition 
below: 

// my company paid no dividends, I think the 
report should be . . . 

9%. . . .A financial statement only. 

£.... Detailed information on why no 
profits were made. 

^ .... A very elaborate report, with pic- 
tures. 



Charts? 



'35 



// an annual report had a chart like this [Fig. 
152], it would mean for the year 1940 that . . . 



SALES CHART 



$5,000,000 
$4,000,000 
$3,000,000 
$2,000,000 
$1,000,000 



'36 



10%, 



22%. 

62%. 

6%. 



"37 '38 

Fig. 152 



'39 



'40 



.The company made more money 
than in the last five years. 

. Sold greatest volume of goods in six 
years. 

.Sales were at the highest money 
value in six years. 

. Don't know. 



222 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



THE BALASNY SURVEY 

A survey to determine what stockholders want in 
their annual reports was conducted in 1944 by 
Raymond L. Balasny, president of the Yearbooks 
Publishing Company. A questionnaire contain- 
ing four groups of questions and a section for re- 
marks was sent to over 2000 readers of the Finan- 
cial World in all parts of the country. From the 
remarks made by respondents, it was evident that 
a representative cross-section of investors had been 
reached. Many of the respondents said they 
owned stocks in over 1 50 corporations. The ques- 
tions and the tabulation of replies are given below. 



General Questions 

1. Check the magazine to which you would prefer 
annual report to correspond for cover size. 

Reader's Digest 22% 

Time Magazine 70 

Life Magazine 4 

Indifferent 4 

2. Check the number of pages that you would like 
the report to contain considering your above 
designated cover size. 

R.D. TIME LIFE 

Less than 12 pages 50% 32% 50% 

12 pages 26 30 ' 19 

24 pages 8 22 6 

32 pages 4 6 

48 pages 4 ] 6 

Over 48 pages 1 2 6 

Indifferent 7 7 13 

3. Check the kind of cover you would like. 

Plain 76% 

Decorative 21 

Indifferent 3 

Indif- 
Yes No ferent 

4. Would you like bar and line 

graphs in your annual report? 59% 9% 32% 

5. Would you like pictorial 

graphs in your annual report? 46 19 35 

6. Would you like to have the 
text broken by graphs and 
photographs in the appropri- 
ate places? 66 13 21 

7. Check the number of ink colors with which you 
would like your report to be made up. 

Black 48% 

Black and 1 color 28 

Black and 2 colors 12 



Black and 3 colors 4 

Black and 4 colors 1 

Black and more than 4 colors . . 1 

Indifferent 6 

8. Check the style in which you would like the text 
written. 

Non-technical prose 79% 

Customary legal 13 

News flash style 6 

Indifferent 2 

Indif- 
Yes No ferent 

9. Have you been in the habit of 

saving your annual reports? 58% 36% 6% 

10. If the report was attractive and readable would 
you 

Show it to your business associates? .... 52% 

Show it to your family? 44 

Show it to your friends? 39 

Questions on Subject Matter 

Indif- 
Yes No ferent 

11. Would you like a summary 
page of statistics of the past 
year pertaining to operations 
with a comparison with pre- 
vious years? 92% 2% 6% 

12. Would you prefer a detailed 
balance sheet and profit and 

loss statement? 69 12 19 

13. Would you like the balance 
sheet to be presented with a 

year to year comparison? .... 89 2 9 
If so, check (one) the number of years compari- 
son you would like. 

2 years 29% 

3 years 25 

5 years 29 

10 years 14 

25 years 3 

Indif- 
Yes No ferent 

14. Would you like a "Cash In- 
come vs. Cash Outgo" state- 
ment? 59% 13% 27% 

15. Would you like a percentage 
analysis of all statistics pre- 
sented? 51 18 31 

16. Do you believe a statement as 
to dividend policy would make 

for a better understanding? 94 2 4 

17. Check from the following items pertaining to 
taxes those in which you are interested. 

223 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



a. ratio of taxes paid to net profits be- 
fore taxes 64% 

b. ratio of taxes paid to wages paid .... 27 

c. ratio of taxes paid to dividends paid 58 

d. annual taxes for the previous ten 
years and the percent of increase or 
decrease 47 

Indif- 
Yes No ferent 

18. Would you like a gross sales 
breakdown? , 39% 21% 40% 

19. Would you like a statistical 

analysis of employee relations? 45 21 34 
If so, please check from the following items per- 
taining to employees those in which you are 
interested. 

a. Number 65% 

b. Sex 30 

c. Age 25 

d. Salaries 70 

e. Wages and hours 67 

f. Comparison of the foregoing a 
through e with the industry averages 
and also the U. S. all-industry aver- 
ages 67 

20. Check from the following items pertaining to 
stockholders those in which you are interested. 

a. Yearly trends in the number of stock- 
holders 64% 

b. Sex distribution of stockholders ... 11 

c. Occupations of stockholders 22 

d. Average shareholdings per stock- 
holder 71 

e. Geographical percentage distribution 

of stockholders 29 

Indif- 
Yes No ferent 

21. Would you like to know the 
background and affiliations of 

your officers and directors? 88% 2% 10% 

22. Would you like to know the 
general future plans of the 

company? 95 1 4 

23. Would you be interested in 
the company's advertising pro- 
gram? 62 14 24 

24. Would you like a descriptive 

list of products and services? 82 5 . 13 

25. Would you like to know the 
kinds of research conducted 

by your company? 82 4 14 

26. Would you like to know the 
number of employees engaged 

in research? 53 14 33 

224 



Questions on Graphs 

27. Check from the following items pertaining to 
graphs those in which you are interested. 

a. Map showing location of company, 
its plants, its sales agencies, its sub- 
sidiaries, and its sphere of influence 64% 

b. Graph showing trend of gross in- 
come and net income 62 

c. Graph titled "Where From — Where 

Go (Cash Income vs. Cash Outgo)" 35 

d. A graph on trend of earnings and 
dividends 88 

e. Graphs on the subject of taxes paid 

by the corporation 43 

f. Graphs on employees 15 

g. Map showing the geographical dis- 
tribution of stockholders 16 

h. Graph on sales trends 49 

i. Organization chart of the company 32 

Questions on Photographs 

28. Check those of the following of which you would 
like to see photographs. 

a. Company president 39% 

Informal pose 85%, 

Formal portrait 15 

b. Officers and directors 29 

c. Buildings and plant facilities 72 

d. Products 78 

e. Use of products 57 

f. Outstanding company events of the 
year 31 

g. Users of products 31 

h. Process of manufacturing the prod- 
ucts 43 

i. Employees in action 19 

SURVEY SHOWING HOW MUCH 
ATTENTION IS GIVEN THE REPORT 

A survey made by sending questionnaires to 2000 
representative security-holders in twenty-five cities 
of the United States and to 313 community lead- 
ers in four eastern cities wmere the company mak- 
ing the survey has plants, throws light on the read- 
ing habits of those who receive reports. The 
questions relating to what the stockholder does 
with the report and the tabulation of replies are 
as follows: 

When you receive the annual report of one of 
the companies in which you own stock, do you 
generally: 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 





All 




Communi 


ty 




Replies 





Leaders 


Of 
. 


Read all of the report? 


336 


48 


42 


42 


Read 3/ 4 of it? 


91 


13 


12 


12 


Read \/ % of it? 


86 


13 


18 


18 


Read 14 of it? 


15 


2 


3 


3 


Skim through it? 


150 


21 


20 


19 


Read none of it? 


7 


1 








(Not stated) 


13 


9 


6 


6 


(Total replies) 


698 


100 


101 


100 



The people who answered this question consti- 
tute a group with more than average interest in 
corporate affairs, for it was determined through 
question and answer that 50% of those who re- 
turned the questionnaire owned stock in more 
than eleven companies. Nearly one-third of the 
group said they owned stock in more than twenty- 
five companies. 

WHAT THE SECURITY 
ANALYST WANTS 

Security analysts, as a group, study the corporate 
annual report with keener interest than any other 
single class of readers. From their viewpoint, the 
progress that has been made in amplifying annual 
reports and making them more readable and in- 
teresting still leaves much to be desired. Only a 
small percentage of the industrial reports satisfy 
the security analysts who look for full financial in- 
formation and certain nonfinancial information. 
In their opinion, railroads and public utilities 
usually do a better job than industrial companies 
in reporting the type of information that the se- 
curity analyst looks for. The reason is obvious — - 
they are "regulated" companies. 

THE CONSOLIDATED EDISON 
COMPANY SURVEY 

The Consolidated Edison Company conducted a 
survey among 750 members of the New York So- 
ciety of Security Analysts, to determine if the com- 
pany's annual report was providing security ana- 
lysts and investors with the information that they 
need. Eighty-eight replies were received and 
tabulated. As indicated at page 16, and in the 
letter reproduced below, this company feels that 
if it is to have any one group of people in mind 
in preparing the annual report, that group should 
be the sophisticated investors. 

The letter that accompanied this survey is re- 
produced below. The questions that have gen- 



eral interest for anyone working on the annual 
report and some of the comments that other com- 
panies might profit by are also given below. 

To the Members of 

The New York Society of Security Analysts: 

This letter is inspired by an article in the recent 
issue of The Analysts Journal entitled "Retrogres- 
sion in Annual Reports to Stockholders?" in which 
the point is made that the recent trend toward mod- 
ernizing and streamlining has resulted in less inform- 
ative reports. 

We have felt for many years that if our report was 
to be directed to one group more than any other, that 
group should be the sophisticated investors, those 
who can readily comprehend the financial statements 
and statistics presented and who at the same time 
would welcome the information furnished by a run- 
ning account of the year's activities. 

We have believed that this group, which includes 
the members of your organization, is, by reason of 
ability to interpret the Company to others, the best 
liaison we have with holders of large amounts of our 
securities. 

We would now like to know how closely we have 
come to providing this group with what it needs and 
wants in an annual report, and we are canvassing 
your membership to try to find out. 

You will find enclosed a copy of our 1944 Annual 
Report, just released. You will also find a question- 
naire and a self-addressed stamped envelope. When 
you have gone over the report will you kindly check 
the questionnaire, adding your comments as briefly 
or as fully as you wish, and return it to us? 

Your cooperation will be very much appreciated 
and we assure you all suggestions will be given most 
thorough consideration in the preparation of our sub- 
sequent annual reports. 

Very truly yours, 

(signed) H. S. Sutton 
Executive Assistant to the President 

1. "Simplified Form of Statement of Income and 

Its Use for the Year 1944" (p. 4) 

Number % 

Object to it 2 2.3 

Like it 68 77.2 

Don't care 10 11.4 

Blank 8 9.1 

2. President's letter (pages 5 to 16) 

Number % 

Too long 9 10.2 

Too short 3 3.4 

About right length 62 70.5 

Blank 14 15.9 

225 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



3. "Four-year Comparison of Earnings" (p. 6) 

Number % 

Helpful 81 92.0 

Of little value 2 2.3 

Don't care 2 2.3 

Blank 3 3.4 

4. "Estimated Reduction in Federal Income Tax 

Due to Surplus Charges" (p. 8) 

Number % 
This explanation is clear and 

adequate f>0 68.2 

Is not adequate II 15.9 

Blank 14 15.9 

5. "Detailed Tax Comparisons" ('Fable, p. 8) 

Number % 

Useful 78 88.6 

Not useful 1 1.1 

Don't care 5 5.7 

Blank 4 4.6 

8. "Employes and Employe Relations" (p. 13) 

Number % 

Would like more detail 8 9.1 

Prefer less detail 11 12.5 

About right 63 71.6 

Blank 6 6.8 

9. "Stockholders" (p. 15) 

Number % 

Would like more detail 12 13.6 

Prefer less detail 6 6.8 

About right 62 70.5 

Blank 8 9.1 

10. Chart (Line chart showing Consolidated Edison 

System revenues compared with electric and 
gas industries and national industrial produc- 
tion. See similar chart in Fig. 26, page 64.) 

Number % 
Find this type of chart interesting 

and helpful 67 76.1 

Of little value 11 12.5 

Don't care 6 6.8 

Blank 4 4.6 

11. "Operating Statistics" (p. 17) 

Number % 

Like ten-year tables 75 85.2 

Five years would be adequate ... 6 6.8 

Blank 7 8.0 

226 



12. Financial Statements (pages 19 to 25) 

Number % 

Would like more detail 17 19.3 

Prefer less detail 3 3.4 

Just about right 51 58.0 

Like comparative statements .... 52 59.0 

Find them of little value 

Blank 5 5.7 

13. "Investments in Subsidiary Companies" (p. 22) 

Number % 

Helpful 74 84.1 

Of little value 5 5.7 

Don't care 4 4.5 

Blank 5 5.7 

14. "Long Term Debt Outstanding" (pages 28 and 

29) 

Number % 

Helpful 81 92.0 

Of little value 2 2.3 

Don't care 

Blank 5 5.7 

Suggestions that occurred frequently and that may be 

of general usefulness: 

Round off dollar figures to the nearest thousand. 

Show earnings and revenue data for a period of 
ten years or longer. 

Italics used to show a decrease were not clear 
enough. 

Want comments on future prospects of the com- 
pany. 

THE M. K. MELLOTT & CO. SURVEY 

M. K. Mellott & Co., public relations counselors, 
Pittsburgh, Pa., sent 1000 questionnaires to ana- 
lysts associated with banks, brokers, financial pub- 
lishers, investment counselors, investment trusts 
and insurance companies to ascertain their atti- 
tude toward current corporate reporting. The 
study was made late in 1945. The questions asked 
are shown in the following tabulation. Of spe- 
cial interest are the replies to question 3, which 
show the items on which the analyst desires better 
coverage in the annual report. 

Summary of Questionnaire Results 

Summary of 123 responses from security analysts, 
brokers, investment houses, insurance companies, and 
the like, to a questionnaire on the "Adequacy of 
Corporate Reporting" by M. K. Mellott and Com- 
pany, public relations firm of Pittsburgh, Pa., as of 
November 1, 1945. 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



(a) From what sources do you now obtain cor- 
porate information? 



Part A — Financial Information 



Rank Number Per Cent 



10 



114 

110 

104 

95 

86 

77 
54 

40 

32 

49 



99.1 
95.7 
90.4 
82.6 

74.8 

67.0 
47.0 

34.8 

27.8 

42.6 



Source 

Company reports 

Statistical services 

Newspapers 

Personal contact with 
company officers 

Securities and Ex- 
change Commission 

Magazines 

Personal contact with 
company competitors 

Personal contact with 
company customers 

Personal contact with 
company suppliers 

Other sources 



Total number reporting — 115. 



(b) Which sources do you consider best? 



Rank Number Per Cent 



66 
60 

12 
33 

22 

13 

12 
11 

5 
18 



64.1 
58.3 

40.8 
32.0 

21.4 

12.6 

11.7 
10.7 

4.9 
17.5 



Source 

Company reports 

Personal contact with 
company officers 

Statistical services 

Securities and Ex- 
change Commission 

Personal contact with 
company competitors 

Personal contact with 
company customers 

Newspapers 

Personal contact with 
company suppliers 

Magazines 

Other sources 



Total number reporting — 103. 

2. Would you say that, in general, corporate report- 
ing being done today meets the needs of the 
security investor? 



Rank Xumber Per Cent 



63 

47 
2 



Total 112 



56.2 

42.0 

1.8 

100.0 



Comment 
Inadequately 
Adequately 
Completely 



Which of the following classes of information is 
generally inadequately supplied in today's report- 
ing program of corporations to the public? 



Rank 


Number 


Per Cent 


Item 


1 


74 


71.8 


Costs 


9 


61 


59.2 


Depreciation policy 


3 


50 


48.5 


Reserves 


4 


49 


47.6 


Unfilled orders 


5 


47 


45.6 


Sales 


6 


41 


39.8 


Miscellaneous income 


7 


30 


29.1 


Taxes 


8 


23 


22.3 


Earnings 


9 


20 


19.4 


Assets 


10 


9 


8.7 


Working capital 


11 


7 


6.8 


Capital and surplus 


12 


5 


4.9 


Funded debt 


13 


O 


2.9 


Dividends 


14 


21 


20.4 


Other 


Total numbei 


reporting- 


—103. 



Part B — Other Information 



ank 


Number 


Per Cent 


Item 


1 


64 


66.7 


Competition 


2 


46 


47.9 


Management 


3 


46 


47.9 


Merchandising policy 


4 


45 


46.9 


Research 


5 


44 


45.8 


Markets 


6 


44 


45.8 


Prices 


7 


40 


41.7 


Products 


8 


38 


39.6 


Supply sources 


9 


37 


38.5 


Labor relations 


10 


36 


37.5 


Subsidiaries 


11 


33 


34.4 


Plants and equipment 


12 


30 


31.2 


Production 


13 


25 


26.0 


History 


14 


24 


25.0 


Government relations 


15 


22 


22.9 


Customer relations 


16 


14 


14.6 


Stockholders 


17 


5 


5.2 


Other 



Total number reporting — 96. 



CONTROLLERSHIP FOUNDATION SURVEY 

The Controllership Foundation, Inc. will make 
available in 1948 the results of an inquiry to find 
out what various groups of people want in cor- 
poration annual reports. The Controllership 
Foundation expects that its report will eliminate 
confusion and waste in present efforts to tell the 
business story. In the investigation, which is be- 
ing conducted by Elmo Roper, New York City, 
the public is being classified into groups. Effort 
is being made, through depth interviews, to find 

227 



SURVEYS OF OPINIONS ON ANNUAL REPORTS 



out what financial analysts and bankers want in 
the way of financial information. The informa- 
tional needs of large investors are being studied, 
as are those of women investors. Also, through 
public-opinion polling methods, the needs of what 
might be called "typical" or "average" small stock- 
holders are being examined. Extensive opinion 
polling is being conducted among workers in fac- 
tory and office. Business and professional groups, 
including educators, are being dealt with in a 
separate classification. 

WHAT COMPANIES MAKE THE BEST 
REPORTS, IN STOCKHOLDERS' OPINIONS 

A group of 2000 investors (see page 224) were 
asked, "What company or companies, in your 
opinion, generally put out the best annual reports, 
from a stockholders' viewpoint?" In the 698 re- 
plies received, 125 different companies were men- 
tioned. The corporations named most often and 
the number of persons who so rated them are 
listed below. All other companies that were 
mentioned received from one to three votes. 



General Motors 


80 


Borden's 


27 


Chesapeake & Ohio 




General Foods 


25 


RR 


37 


Standard Oil of N. J. 


20 


AT&T 


37 


Du Pont Company 


15 


General Electric 


32 


Westinghouse 


11 


U. S. Steel 


28 


Swift 


11 



Chrysler 
Socony Vacuum 
Republic Steel 
Consolidated Edison 
Pennsylvania RR 
Libby McNeil 



10 Union Pacific 7 

10 Eastman Kodak 6 

9 Caterpillar Tractor 6 

9 Pullman 6 

9 Tidewater Oil 6 
7 



The number of stockholders who receive an- 
nual reports and the general publicity given to the 
report are, of course, factors in any choice of best 
reports. A company that sends an excellently pre- 
pared, comprehensive report to 400,000 stockhold- 
ers and follows it up with wide publicity stands a 
better chance of receiving repeated mention than 
one with an equally substantial report that is sent 
to 50,000 stockholders and is given no further pub- 
licity. The fact remains, nevertheless, that the 
companies mentioned have established a reputa- 
tion for offering reports that are interestingly pre- 
sented. 

WHAT STOCKHOLDERS HAVE SAID 
ABOUT THE COST OF MODERN REPORTS 

Whenever stockholders have been given an oppor- 
tunity to express remarks in questionnaires, some 
have commented upon the expense of an elaborate 
report. It is clear that they overlook 5 the fact that 
the cost, when reduced to per-copy expense, is not 
substantial as measured against what the company 
can gain from a complete, attractively presented, 
factual report. 



228 






HOW TO BRING STOCKHOLDERS 
AND MANAGEMENT TOGETHER 



CHAPTER 18 



For many years management acted as though its 
sole responsibility to stockholders was to follow 
the letter of the law. A formal annual meeting of 
stockholders, an annual report, payment of divi- 
dends when profits permitted, special consents 
of the stockholders when the statute, charter 
or by-laws required them — these constituted the 
only management-stockholder contacts. Unfor- 
tunately, the bulk of American corporations still 
adhere to this narrow concept of stockholder re- 
lations. 

Some of the larger corporations, however, have 
made a decided effort to bring management and 
stockholders closer together. Year in and year 
out, they have in operation a carefully prepared 
and well rounded stockholders-relation program. 
But these companies are the exception. 

The slowness of management generally to fol- 
low the lead of the more advanced corporations is 
surprising, first, because stock ownership has ex- 
panded rapidly in the past twenty years, 1 and sec- 
ond, because management has everything to gain 
and nothing to lose by improving relations with 
stockholders. This applies to the large corpora- 
tion as well as the small one that is not closely 
held. The advantages listed below show the 
potential gains from developing a loyal and in- 
formed group of stockholders. 

ADVANTAGES OF IMPROVING 
STOCKHOLDER RELATIONS 

Here is what a corporation can gain from a sound 
stockholder-relations program: 

1 The following list is representative of what has happened to 
stock ownership in the past twenty years. 

7 926 7 936 7 946 

American Tel. & Tel 399,121 640,991 695,660 

General Motors Corp 50,369* 342,384* 430,384* 

Standard Oil (N. J.) 77,231 120,630 162,228 

Consolidated Edison Co. of 

N. Y 60,000* 114,395* 152,888* 

American Home Products . . . 2,000 7,669 11,800 

Sutherland Paper 267 1,612 2,620 

Fansteel Metallurgical 72 699 1,541 

* Including preferred shareholders 



1 . Better public relations. To the extent that 
the company wins support of its stockholders, it 
automatically gains public support, for stockhold- 
ers are a part of the public. Furthermore, each 
informed stockholder can influence family and 
friends — also part of the public. 

2. Support of the private-enterprise system. 
Stockholders are generally on the side of the pri- 
vate-enterprise system. They are inactive sup- 
porters, however, principally because they are in- 
articulate. The corporation can help make them 
articulate. For example, when the company 
points out in its stockholder literature how share- 
holders, management and workers contribute to 
and share in profits, it furnishes the stockholder 
with something to say when business is attacked 
as out to make more than it deserves. 

3. Support of the company. Should the com- 
pany undeservedly run into adverse publicity, it 
can count upon support of its stockholders — if 
it has kept them informed. It can also ask the 
stockholders to help in opposing pending legisla- 
tion that would hurt their interests. Similarly, it 
can urge them to endorse pending bills that the 
company favors. 

An example of the way in which stockholder 
cooperation can be obtained when relations are 
good, was recently demonstrated at a stockhold- 
ers' meeting of the Pennsylvania Railroad Com- 
pany. A stockholder addressed the meeting at 
considerable length, urging stockholders to take 
a more active part in matters involving labor and 
governmental relations. He proposed a resolu- 
tion that a committee of small and large stock- 
holders be formed by the management. The 
committee would work with management on la- 
bor and governmental matters to emphasize the 
fact that management and labor employment are 
made possible by the stockholders' investment. 
The resolution was supported by management 
and adopted at the meeting. Shortly thereafter 
the committee that management had appointed 
met with the president of the company. At this 

229 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



meeting, the president reviewed for the commit- 
tee various governmental matters having an effect 
upon the interests of the company and its stock- 
holders. A special letter was sent to the stock- 
holders describing the origin, purpose and recom- 
mendations of the committee. 

4. Support of management. By keeping 
stockholders informed, confidence is developed 
between management and owners. Stockholders 
get a better understanding of the task of running 
a modern business. Management becomes more 
alert to the stockholders' viewpoint. With both 
groups profiting in this way, the chances of man- 
agement being troubled by recalcitrant stock- 
holders are reduced. The occasional trouble- 
makina: stockholder finds himself a lone wolf. 

o 

5. Support of the stock. Management is al- 
ways disturbed when the company's stock takes a 
nose-dive because of panicky liquidation. An 
informed family of stockholders is a bulwark 
against unwarranted price drops. Another sta- 
bilizing influence can also result from winning 
stockholders as friends. A friendly stockholder, 
fully informed of company affairs, has a pride in 
ownership of his shares. All his family knows 
how he feels about the stock. When they inherit 
it or acquire it by gift, they hold on to the invest- 
ment. That, too, is obviously helpful in a dis- 
orderly market. 

6. Support of the product. A corporation 
can make its informed stockholders boosters, if 
not actual users, of its products. 



BASIS OF A SOUND STOCKHOLDER 
RELATIONS PROGRAM 

Before management can plan a sound stockholder- 
relations program, it must: 

1. Fix the responsibility for establishing and 
carrying through the activity. 

2. Analyze its stockholder lists to know whom 
it is addressing. 

3. Learn the stockholders' attitude toward the 
company. 

4. Fix in its mind the functions of the stock- 
holder and aim to get him to recognize these func- 
tions as his. 

5. Know the objectives to be accomplished. 

6. Be familiar with the techniques of improv- 
ing stockholder relations. Each of these "musts" 
is discussed below. 

230 



FIXING THE RESPONSIBILITY 
FOR STOCKHOLDER RELATIONS 

Once a company recognizes the importance of 
mutual understanding between shareholders and 
management and decides to improve its stock- 
holder relations, it must find the right person to 
head this activity. It should place the respon- 
sibility in someone who has had experience with 
public relations, for stockholder relations is but 
a part of public relations. It must select some- 
one who is high enough in authority to make im- 
portant decisions and important enough in rank 
to hold the respect of the shareholders. 

Where management finally places the respon- 
sibility depends upon the particular organization. 
A recent survey 2 of stockholder-relations activities 
conducted by Verne Burnett, public relations con- 
sultant, in cooperation with Association of Na- 
tional Advertisers, Inc., and the Journal of Capi- 
tal, throws light upon the subject of who handles 
stockholder relations. The survey analyzed the 
methods used by one hundred companies to keep 
3,500,000 stockholders informed. In three out of 
four of these companies, a definite official or de- 
partment had been assigned to supervise stock- 
holder relations. The survey gives the following 
information as to where the responsibility was 
placed in these companies: 

The Secretary — alone or with the assistance of 
other officials or supervision of higher officers — in 
thirty-two instances. 

The President — alone or in collaboration with 
other officials — in twenty-three instances. 

The Treasurer or Secretary-Treasurer — alone 
or with the assistance of other officials or super- 
vision of higher officers — in thirteen instances. 

The Public Relations Director — alone or with 
the assistance or supervision of company officers 
— in twelve instances. 

ANALYZING THE STOCKHOLDERS 

In the opinion of Harold S. Sutton, Treasurer, 
Consolidated Edison Company of New York, Inc., 
the corporation should direct its stockholder-rela- 
tions program to those among its shareholders 
who are permanent investors. This means that 
the corporation should exclude the casual holder, 
the outright speculator, the involuntary investor 
and others who are not bona fide investors. The 



2 Copies of this survey can be obtained from the Association 
of National Advertisers, Inc., 285 Madison Ave., New York City 

($2.00). 



k. 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



casual investor is, for example, one whose divi- 
dends are inconsequential in comparison with his 
total assets and income. Such a stockholder will 
have slight interest in the company. The in- 
voluntary investor is one who bought the stock 
because he hoped that it would go up in price. 
Disappointed, he hung on. His interest in and 
loyalty to the company is colored by a grievance. 
As to the others, the real investors, says Mr. Sut- 
ton, remember that they are people — and people 
are funny. 

To quote divectly from his address before the 
Investors League's 1947 forum on management- 
stockholder relations: 

Where, oh where, is that ideal investor who has 
gotten out the statistical manuals and a file of your 
annual and quarterly reports, who has studied your 
history and your prospects, who has been persuaded, 
through careful inquiry, that you have the most com- 
petent, the most aggressive and at the same time the 
most conservative management in your particular in- 
dustry, and then, in calm possession of all the facts, 
has gone to his broker and placed his order? The 
one who from then on acknowledges the president's 
letter of welcome, always sends in his proxy, or else 
attends your annual meeting and asks only the most 
pertinent of questions, reports changes of address at 
once, deposits his dividend checks promptly, and gen- 
erously supports the Investors League and comes to 
all its meetings. He may be in the ranks of your 
stockholders — this paragon — but how seldom you see 
traces of him. * * * 

Those charged with the responsibility for relations 
with the stockholders in corporations have to realize 
that they are dealing not with a sharply defined sta- 
tistical average, but with a cross-section of our body 
politic; that they are up against al-1 the apathy, in- 
difference, and lethargy which we Americans nor- 
mally demonstrate in the conduct of our affairs. 

Although it is true that there is no such thing 
as an average stockholder, it would be foolhardy 
to plan a stockholder-relations program without 
a statistical picture of the bona fide investors. 
Therefore, analysis in order to arrive at the fol- 
lowing information is essential: 

1. Percentage of stockholders who are men and 
women. 

2. Geographical distribution of the stock. 

3. How many stockholders own 1 to 10, 10 to 50, 
50 to 100, and so on, shares. 

4. Length of time shares have been held. 

5. Occupations. 

6. Age groups. 



Later in this chapter we point out how informa- 
tion on age and occupations can be obtained (see 
page 248) . The remainder of the information 
can be compiled from the stock records. The 
usual practice is to make an occasional survey of 
who owns the company. The Borden Company, 
however, makes a continuous study of company 
ownership. 

LEARNING THE STOCKHOLDERS' 
ATTITUDE TOWARD THE COMPANY 

In a closely held company, management is likely 
to know, without any special study, whether the 
owners are critical of the company's policies, 
whether they consider the management alert and 
aggressive and whether they are a satisfied group. 
If stock ownership is widely distributed, manage- 
ment can learn something of stockholder atti- 
tudes from: 

1 . Correspondence with the stockholders. See 
page 249. 

2. Surveys that incidentally bring out opin- 
ions. For example, the Allegheny Ludlum Steel 
Corporation survey reported at page 215 asked the 
stockholders to list any activity, policy, product or 
practice of the company that they commended or 
criticized, and provided space for additional re- 
marks. 

3. Turnover of stock ownership. The length 
of time shares have been held reflects the stock- 
holders' satisfaction with the management. A 
company that finds its old-timers holding on to 
shares when earnings are declining or when losses 
have been reported, knows that the stockholders 
have faith in the company and are willing to con- 
tinue to support it. 

4. The price of the stock. The stock of some 
companies never rises in price to its true value — 
a reflection, in some instances, of dissatisfaction 
with dividend policy. 

WHAT ARE THE FUNCTIONS 
OF A STOCKHOLDER 

A stockholder may not recognize that he has any 
function beyond collecting dividends. But man- 
agement may see the function of a stockholder as 
much broader. If it does, it must try to get the 
stockholder to see his function as management 
sees it. 

At stockholders' meetings held by General Mills, 
Inc., Chairman James F. Bell emphasizes the re- 
sponsibilities that go with stock ownership. In a 

231 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



brief address to stockholders at a regional meet- 
ing, he said: 

As a stockholder, yon are an integral part of an 
enterprise engaged in the manufacture of goods and 
services for sale to the public. You have a duty to 
see that the business is conducted in the public inter- 
est. You have an obligation to your management to 
see that it is operating efficiently. You have a re- 
sponsibility likewise to the workers, whose jobs you 
have created and whose tools you have furnished. 

Mr. Bell lists these specific duties of the stock- 
holder: 

1. To know the company — its products, manage- 
ment, services, financial structure — the character 
and reputation of those who, as officers and direc- 
tors, represent his interests and formulate policies 
regarding them. 

2. To carefully analyze the company's printed re- 
ports and publications. 

3. To maintain personal contact with management 
wherever possible. 

4. To buy the goods made by his company, insist 
upon getting them. In so doing he is really buy- 
ing for himself. 

5. To urge others to buy them. 

6. To act as partner, friend, buyer, salesman, adver- 
tising representative, protector and counselor to 
management and labor. 

7. In short, to get behind the company morally and 
spiritually, as well as financially. 

ESTABLISHING 
THE OBJECTIVES 

The objectives of a stockholder-relations program 
have been intimated in the six gains mentioned at 
page 229. These advantages, it will be noticed, 
are largely intangible. In many instances, there- 
fore, the company will have no measure of the 
success of its efforts until an emergency arises. 
However, it may receive unsolicited letters of ap- 
preciation, suggestions and other evidences of 
growing stockholder interest. • It can, of course, 
make a periodic sampling of its stockholders, as 
suggested at page 248, in order to measure the ex- 
tent to which objectives are being attained. 

Since the objectives are intangible, the ap- 
proach to acquiring them is usually subtle. Skill 
is required in awakening stockholder interest. 
In winning stockholder support of the company's 
products, however, the corporation may use a di- 
rect appeal. The reason is obvious. Stockhold- 
ers can take no offense at management's efforts to 
increase sales, even if it asks for the stockholders' 
232 



help. Producers of foods and drugs have been 
the leaders in making a direct bid for stockholder 
patronage and support. A few examples follow. 

ASKING STOCKHOLDERS 
FOR PRODUCT SUPPORT 

American Home Products Corporation used a 
dividend enclosure entitled "20,000 Potential 
Salesmen" — the total of workers and stockhold- 
ers — to solicit stockholder support. The enclos- 
ure ended with this statement: "Since you have a 
real interest in the progress of this Company, I 
am sure you will demonstrate that interest by 
using these products and by introducing them to 
your friends." 

Companies whose products are indirectly used 
by the stockholders sometimes make a similar bid 
for stockholder recognition of their wares. For 
example, Thatcher Glass Manufacturing Com- 
pany, Inc., winds up a letter to stockholders that 
was sent as a dividend enclosure, in this way: 
"When you make your purchase, whether food, 
beverage, floor wax or fly spray, ask for it in a glass 
container. As a Thatcher stockholder, you owe 
it to yourself. Then look for the mTc trademark 
on the bottom because that means it's a quality 
glass container made by the Thatcher Glass Manu- 
facturing Company, Inc." 

Practically every type of mailed communication 
with stockholders has been used in encouraging 
stockholder interest in company products. In 
addition, the following direct methods have also 
been found effective: (1) Offering credit cards 
(see page 246) , (2) giving local dealers the names 
of stockholders within the area, (3) offering gift 
packages (see page 246) . 

Showing stockholders how the product will help 
them as consumers — a straight advertising appeal 
to immediate self-interest — may be more effective 
than a plea for their support as stockholders. 
Even better is the distribution of samples dis- 
cussed at page 246. 

TECHNIQUES FOR IMPROVING 
STOCKHOLDER RELATIONS 

The most important single technique for creating 
a loyal and informed body of stockholders is to 
send them an informative, attractive, readable an- 
nual report. Since this book is devoted to that 
subject, nothing further need be said here about 
the annual report. It is worth repeating, how- 
ever, that a statement in the annual report of the 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



company's policy in preparing the report is an ef- 
fective way to show management's desire to have 
its stockholders know the company better. See 
page 25. 

The balance of this chapter explains the tech- 
niques of the following methods of improving 
stockholder relations: 

1. Interim reports. 

2. Dividend enclosures. 

3. Annual meetings. 

4. Regional meetings. 

5. Film versions of annual reports: television. 

6. Reports on stockholder meetings. 

7. Special letters to stockholders. 

8. Stockholder house organs. 

9. Company and institutional booklets. 

10. Other mailings to stockholders. 

1 1. Gifts and special offers to stockholders. 

12. Welcome letters to new stockholders. 

13. Letters to stockholders increasing their hold- 
ings. 

14. Regret letters to departing stockholders. 

15. Contacts through solicitation of proxies. 

16. Surveys among stockholders. 

17. Replies to stockholders' letters. 

18. Invitations to visit the plant. 

INTERIM REPORTS 

WITH FINANCIAL INFORMATION 

An interim report to stockholders has one prin- 
cipal purpose: To keep them informed concern- 
ing the activities and business of the company dur- 
ing the interval between annual reports. In this 
discussion, interim reports refer to those that con- 
tain some form of quarterly or semi-annual finan- 
cial statement. 

Corporations are not usually required to send 
stockholders an interim report, they do so volun- 
tarily as a part of their stockholder-relations pro- 
gram. The interim-earnings statements required 
of listed companies by the New York Stock Ex- 
change do not have to be mailed to stockholders. 
It is sufficient if they are released to at least two 
New York newspapers of general circulation and 
to the statistical services for publication as a news 
item as soon as possible after the close of the peri- 
ods agreed upon with the Exchange. Two copies 
of the published statements must be filed with the 
Exchange. Undoubtedly, the Exchange require- 
ments have given impetus to the mailing of in- 
terim reports to stockholders. 

Not many companies that are using interim re- 



ports are taking advantage of the opportunity they 
afford for making of each stockholder a staunch 
supporter of the company and a satisfied co-owner. 
An examination of interim reports shows most of 
them to be dull, unattractive, stereotyped and un- 
informative to the untrained reader of financial 
statements. 

The following interesting figures on interim- 
report practices, disclosed by a survey of 1000 com- 
panies with widely held shares, were reported in 
the Financial World, January 22, 1947. Of those 
replying to the questionnaire, 35% published in- 
terim reports in 1946, Avhile 10% issued semi- 
annual or mid-year earnings statements. Half of 
these companies mailed the report with the divi- 
dend check. 87% of the interim reports were 
printed, 13% were machine-duplicated. Of the 
printed statements, 60% were four-page leaflets, 
21% were two-page single sheets, and the balance 
were six-page folders and eight-, twelve- and six- 
teen-page booklets. 

TYPES OF 
INTERIM REPORTS 

Most interim reports fall into the first three of the 
following four types: 

1. A bare financial statement or a letter sum- 
marizing results of operations for the period. 

2. A financial report with a brief transmittal 
letter. 

3. A financial report with a letter commenting 
upon the results of operations as reflected in 
the statements. 

4. A news letter or other stockholder publication 
that includes the interim financial statement 
or report among other news items. 

The news-letter type of interim report is by far 
the most effective because: (1) It can be made in- 
teresting and readable, (2) it can cover any aspect 
of the business that stockholders ought to or might 
want to know about, (3) the tone can be intimate, 
informal and direct, (4) it can be made attractive 
in appearance with a good title page, legible type 
and occasional illustrations. Ideas for this type 
of interim report are given in the discussion of 
stockholder publications, at page 244. 

FINANCIAL INFORMATION 
IN THE INTERIM REPORT 

The financial information given in the interim 
reports cannot, of course, be as complete and ac- 

233 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



curate as an audited annual statement. As an 
interim statement, it is necessarily subject to 
year-end adjustments. Nevertheless, with proper 
warning to the stockholders that it should not be 
taken as a prediction for the year or that predic- 
tion on the basis of the interim statement is in- 
advisable because of the seasonal nature of the 
business, there is no reason why detailed income 
statements and balance sheets should not be given 
out. A number of companies, in fact, do present 
semi-annual statements that are quite as complete 
as their annual statements. 

On the other hand, some companies that make 
good use of the interim report from the stand- 
point of presenting a human interest story of de- 
velopments in the company, give a meagre finan- 
cial report. They limit the information to net 
sales, net income before taxes, taxes, net income 
after taxes and net income per share. 

Comparative data should always be presented 
with whatever financial summary is given. A 
minimum would be comparison with the cor- 
responding period of the preceding year. In 
second-quarter reports, in addition to quarterly 
comparisons with the preceding year, six-months 
comparisons should be given. And in third-quar- 
ter reports, in addition to quarterly comparisons, 
nine-months comparisons should be added. 

HOW THE INTERIM REPORT IS 
PREPARED AND DISTRIBUTED 

The responsibility for preparing the financial data 
for the interim report usually rests with the corpo- 
rate treasurer or other accounting officer. Other 
aspects of the report are handled by whoever is in 
charge of stockholder relations. 

Distribution is generally made to the same peo- 
ple who get the annual report. 

FROM QUARTERLY STATEMENT 
TO MONTHLY REPORT 

For several reasons, it may be impractical to dis- 
tribute financial statements to stockholders of- 
tener than once every three months. Even if they 
cannot always be accompanied by formal state- 
ments, however, there is much to be said in favor 
of issuing monthly a "business report" to stock- 
holders on the company's progress, apart from 
such house organs as they may receive. This 
practice contributes to the stockholder's feeling 
that he is a part-owner, receiving businesslike re- 
ports from his managers at regular, fairly frequent 
234 



intervals. Spacing these reports no more than a 
month apart preserves a continuity of interest 
that is lost when reports are submitted four times 
a year or even less frequently. Conditions change 
so rapidly that a quarterly report is often inade- 
quate to keep stockholders up to date on major 
developments. On the other hand, if there is not 
sufficient change or development to assure an 
interesting report every month, the quarterly in- 
terim report may be adequate. 

DIVIDEND ENCLOSURES 

The dividend envelope goes by first class mail. It 
can carry more than the dividend check and the 
usual formal notice of payment and change-of- 
address blank without extra cost. It is therefore 
an excellent means of getting information to 
stockholders. Furthermore, the envelope is cer- 
tain to be opened, since it is awaited. The en- 
closure is bound to be seen. Whether or not it 
will be taken out and read depends upon whether 
it attracts attention and holds interest. 

In spite of this double advantage that dividend 
enclosures offer, many corporations fail to use 
them — a sheer waste of opportunity. Studies 
show that only one out of two companies that 
pay dividends, regularly enclose messages to their 
stockholders. One out of four that don't send 
regular enclosures, do so occasionally. The divi- 
dend enclosure should be part of every well- 
rounded stockholder-relations program. 

TYPES OF 

DIVIDEND ENCLOSURES 

Roughly, dividend enclosures fall into the follow- 
ing groups — excluding interim reports and re- 
ports on the annual meeting of stockholders, 
mentioned at page 241. 

1 . Stockholder news letters or miniature maga- 
zines. These follow more or less the same pattern 
in each issue. They contain a number of brief 
items, photographs and feature articles. Any sub- 
ject that would fit into the annual report is suit- 
able for the news letter or magazine. Many sub- 
jects that lend themselves to detailed treatment 
and that would be too minute for the annual re- 
port, may be used for the news letter or magazine. 

2. A folder devoted to a single subject. 
Choice of subject and style of treatment are im- 
portant. If the folder can be read quickly and 
offers information that makes good conversation, 
stockholders will get into the habit of extracting 



*- 






HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



the enclosure and reading it. Some subjects are 
suggested below. 

3. A folder announcing a special offer to stock- 
holders. This method of improving stockholder 
relations is discussed at page 246. 

4. Reprint of a public address delivered by an 
officer or board member of the company. These 
are usually the least attractive of the dividend 
enclosures, for they are solidly printed, without 
headings or subdivisions. A stockholder must be 
won by the title to do more than look at the 
enclosure. However, with improvement in the 
physical presentation, such an enclosure may help 
in developing a kinship with the company among 
the stockholders. 

5. Special announcements of changes in finan- 
cial structure, such as the company's action in 
issuing; new stock, redeeming; bonds, increasing; 
indebtedness, splitting outstanding stock and the 
like. 



QUALITIES OF 
DIVIDEND ENCLOSURES 

We have already referred to one type of dividend 
enclosure — the interim report. Excluding this, 
dividend enclosures are generally colorful, inter- 
esting and attractive. It is hard to make a finan- 
cial report lively and crisp, but other subjects may 
be selected for their human interest, drama or 
excitement. Also, as long as a report is finan- 
cial, the men of figures have a hand in it — and that 
hand weighs heavily on the printed page. With 
the accountants by-passed, the folder can reflect 
the lighter touch of the advertising and public- 
relations people. 

Companies that want to keep their dividend 
enclosures light, may enclose financial statements 
on a separate slip. This is done occasionally. 

Dividend enclosures are usually illustrated, fre- 
quently in color, and are brief. Their size is de- 
termined by the dividend envelope. Four- and 
six-page folders that fit into a Number- 10 enve- 
lope are customary. A single folded sheet, die- 
cut with an elongated oval or square to fit the 
window envelope, is a common form. The divi- 
dend check is inserted within the folder. 



IDEAS FOR DIVIDEND 
ENCLOSURE FOLDERS 

It would be impossible to offer an exhaustive list 
of subjects suitable for dividend-enclosure folders. 



Here are some ideas that have made good en- 
closures: 

1. An educational subject. Every manufactur- 
ing, mining and processing company has a 
product story that makes good reading. For 
example, "How Oil Is Discovered," written 
up briefly in Lion Oil Company's divi- 
dend enclosures; "Tailor-Made Weather," 
the story of air-conditioning, as told in a 
Westinghouse Stockholders' Quarterly; "Up- 
to-date with Jet Propulsion," a General Elec- 
tric pamphlet. 

2. Improvements in the company's product. 

3. Advances made in research. 

4. How the company is helping related indus- 
tries. 

5. How the company is contributing to inter- 
national welfare. 

6. Additions to production capacity. 

7. The company's training program to develop 
leadership and organization teamwork. 

8. Growth of a particular division of the com- 
pany. 

9. Standards of the company's products, and 
how they are maintained. 

10. Brief history of the company, with early and 
late photographs. 

11. Basic policies on which the company oper- 
ates. 

12. Table of years in which various trademarked 
products were introduced. 

13. Foreign trade. 

14. Who are the directors and officers. 

15. Announcements of anything new in the busi- 
ness, such as acquisition of a new company, 
opening of new plants, branches or offices, 
new advertising campaigns or radio pro- 
grams, changes in packaging of the com- 
pany's products and the like. 

16. A question-and-answer pamphlet clarifying 
misunderstandings about a technical aspect 
of the company's product. 

ANNUAL MEETINGS 

A company can make the following efforts to im- 
prove stockholder relations through the annual 
meeting: 

1. In the notice of the meeting and in the litera- 
ture going to stockholders about the same 
time, urge the stockholders to attend. For 
example, include some friendly persuasion in 

235 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



the annual report mailed prior to the meet- 
ing. 

2. Make it easy for stockholders to attend by ot- 
tering free transportation from a certain place 
— say, the company's office — to the place of 
meeting, if it is to be held elsewhere. 

3. Conduct the meeting in an informal way so 
that the stockholders feel a human relation- 
ship between themselves and the officers at the 
meeting. This feeling can be created, how- 
ever, only if the officers present actually feel 
.1 warmth and friendliness toward the stock- 
holders. Insincerity and superficiality are 
easily recognized. If friendliness is not faked, 
it will be reflected in personal chats with 
stockholders and in sympathetic responses to 
their questions. 

4. Give stockholders a full opportunity to be 
heard and to discuss matters. 

5. If a minority group is likely to raise questions 
or if a corporation policy is open to misunder- 
standing, management should have all the 
facts at hand to support its position. Fac- 
similes or originals of actual accounts and 
documents are often effective in convincing 
wavering stockholders. 

6. Use films, exhibits and shows to stimulate in- 
terest in the meeting. The preparation of a 
film version of the annual report is discussed 
at page 238. 

7. Offer refreshments, samples of the company's 
product, if suitable, tours of the company and 
other features to make the occasion interest- 
ing, informative, pleasant and friendly. 

8. Send stockholders who have not been present 
personally, a report of the meeting. This 
subject is discussed at page 241. 

SHALL SPECIAL EFFORTS 
BE PERSISTENT? 

Stockholder attendance will probably always re- 
main small, in spite of special efforts to get the 
owners to the annual meeting. In the Verne 
Burnett study of stockholder-relations activities, 
referred to at page 230, the one hundred com- 
panies participating in the survey indicated that 
the number of stockholders attending range from 
"1 to 10" up to "500 to 600," with from "20 to 
50" mentioned most frequently. Of these com- 
panies, eight had made special efforts to stimulate 
interest in the meeting. The reason for small 
attendance is obvious and insurmountable: The 
236 



time and place are usually inconvenient for most 
stockholders. 

Some companies are guided by increased attend- 
ance and more active participation in judging the 
effectiveness of their efforts to stimulate interest 
in stockholders' meetings. When such companies 
find that no stockholder is interested in going 
through the plant or in seeing a company film, 
they never again make the offer. On the other 
hand, many companies continue their efforts un- 
der such circumstances, in the belief that con- 
fidence in the company is developed from the very 
eagerness of the management to keep the stock- 
holders informed. 

REGIONAL MEETINGS 

Regional meetings of stockholders are informal 
meetings held in major cities of the country, se- 
lected because they will draw the largest numbers 
of stockholders. 

James F. Bell, Chairman of the Board of Gen- 
eral Mills, Inc., introduced this type of meeting in 
1939. The meetings were repeated with larger 
attendance in 1940 and 1941. They were discon- 
tinued for the duration of the war and resumed 
after the war, when regional meetings were held 
in seven cities. 

No corporate business is transacted at a regional 
meeting, but in every other respect it serves the 
same purpose as the annual stockholders' meeting. 
Thus, the affairs of the business are discussed in 
detail, many questions are asked and answered, 
and highlights of the annual report are explained. 
The following agenda for a typical regional meet- 
ing of General Mills shows how it is planned to 
get the maximum of public-relations benefit from 
the effort and to help the stockholders assume the 
responsibilities that the company feels go with 
stock ownership. These duties are described at 
page 232. 

1. 12.30 P.M. — Press luncheon at hotel. 

2. Cocktails before luncheon. 

3. Informal discussion with the chairman before 
and during luncheon. 

4. Apple PYEQUICK served for (or with) dessert. 
PYEQUICK package displayed on table. 

5. Cigars. 

6. Showing of stockholder movie following lunch- 
eon. 

7. Tru-Heat iron display in room. 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



8. 4.00 P.M. — Stockholders begin assembling. 



9. 

10. 

11. 
12. 
13. 

14. 
15. 
16. 
17. 

18. 



Personal greeting of stockholders by chairman 
at door. 

Division president opens meeting and introduces 
chairman of board. 

Brief address bv the chairman of the board. 

Showing of stockholder movie. 

Question-and-answer session, with division presi- 
dent and other available executives participat- 
ing:. 

Brief demonstrations of Apple PYEOUICK and 
Tru-Heat iron. 

Informal mingling with stockholders during re- 
freshment period. 

Company breakfast cereals, Apple PYEQUICK 
and coffee served. 

A dozen colorful panel displays. (In previous 
years, large product displays in the meeting 
rooms had been used.) 

Betty Crocker booklets and other General Mills 
literature available near the doors. 



Ample publicity is given to regional meetings. 
News releases, pictures and background material are 
handed out at the press luncheons, to which financial 
editors, some food editors, home appliance editors 
and bankers are invited. 



GETTING STOCKHOLDERS TO 
ATTEND REGIONAL MEETINGS 

To get stockholders to attend the regional meet- 
ings, a planned effort must be made. General 
Mills, Inc.. gets a remarkably large attendance at 
its regional meetings — estimated at 3000 people, 
of whom more than 2000 are stockholders — be- 
cause of the number of notices it sends to stock- 
holders concerning the meeting. Personal invi- 
tations are sent by the chairman of the board to 
all stockholders in the areas where meetings are 
scheduled. A sample of a stockholder's invita- 
tion is reproduced below. A reminder folder is 
mailed to reach stockholders five days before the 
meeting. This is followed by a telephone call a 
day or two before the meeting. The local of- 
fices of the company assist in making the phone 
calls. 

A regional-meetings project usually takes the 
time of a number of key people who must be 
present, and involves expense and trouble. For 



that reason, not many companies have adopted 
the idea. However, hundreds of requests have 
been received by General Mills from business 
concerns seeking information on this technique 
in stockholder relations, showing the strong ap- 
peal it has for companies that are public-relations 
minded. 



General Mills, Inc. 



400 Second Avenue South 



Executive Offices 
James F. Bell 



Minneapolis 1, Minn. 
November 4, 1946 



I am delighted to tell you that we are resuming 
our informal stockholders' meetings which we held 
prior to the war. These intimate gatherings proved 
such a source of inspiration to our management that 
I hope their resumption will be equally welcomed by 
the owners of the business. 

These are very difficult and uncertain times both 
for management and for investors. Ownership car- 
ries with it an increasing sense of responsibility, and 
I am most hopeful that these circumstances will 
prompt you to devote a few minutes of your time to 
attending the meeting. As your representatives, the 
Board of Directors need your support. We want to 
tell you about your company. We want an oppor- 
tunity to discuss its affairs with you, to answer any 
cpiestions you may have. Do give us some of your 
thoughts in respect to these on the enclosed card — 
and send it to me either signed or unsigned. Or, 
hand in the card at the time of the meeting if you 
prefer. 

We have a new motion picture in full color to give 
you many interesting details of the assets you own, 
the products of the company, and the story of man- 
agement's stewardship. The first postwar product to 
come from our food research laboratories will be 
served by members of Betty Crocker's staff; and we 
will also have a demonstration of the new General 
Mills Tru-Heat electric iron. 

Please do make an effort to come. The meeting 
will be held in Buffalo at the Hotel Statler on Mon- 
day, November 18, at 4:00 P.M. Make a note of it 
so that you won't forget it. Come and bring any 
friends you desire. I am looking forward to renew- 
ing our acquaintance. 



JFB/m 
Enc. 2 



Sincerely, 



Chairman of the Board 



P.S. Please return the enclosed postcard so that we 
may know how many to expect at the meeting. 

237 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



Dear Mr. Bell: 

I shall be happy to meet with you at the Ambassa- 
dor Hotel, New York City, on Thursday, Novem- 
ber 21, at 4:00 p.m. 

I shall bring with me guests. 



Very truly yours, 



(Address) 

(City) 



Postcard Acceptance of Invitation to Regional Meeting 

The postcard contained space for suggested sub- 
jects or questions for discussion at the informal 
stockholders' meeting. 

Pepsi-Cola Company calls its regional meetings 
"Pepsi-Cola Family Parties." A formal invita- 
tion, as illustrated, is sent to the stockholders, 
with a business reply postcard enclosed. 





The President and Officers 




of your 




Pepsi-Cola Company 




cordially invite you to a 




"PEPSI-COLA FAMILY PARTY" 




to meet neighboring stockholders 




and to 




learn about your Company 


R. S. V. P. 

Walter S. Mack, Jr., Pres. Refreshments 

Pepsi-Cola Company 

Long Island City 1, N. Y. 



Formal Invitation 

The Standard Oil Company (New Jersey) has 
held informal meetings of large investors, such as 
life insurance companies and trust officers. The 
penetrating questions asked at these meetings 
offer an opportunity to reveal the latest company 
developments. The meetings help the company 
retain and build goodwill among important finan- 
cial interests. 
238 



FILM VERSIONS 

OF ANNUAL REPORTS 

Several companies have put their annual reports 
into motion-picture form for presentation to stock- 
holders at annual and regional meetings and 
for use thereafter in connection with their pub- 
lic-relations programs. Some of these companies 
had previous experience in using films for train- 
ing and educational purposes and therefore knew 
something of how to proceed in getting the film 
version of the annual report produced. They 
had a satisfactory relationship with a motion-pic- 
ture producer and knew some of the problems in- 
volved in preparing and showing a film. In the 
following paragraphs an explanation of how an- 
nual-report films are produced is given to en- 
lighten a company that has never before used films 
for any purpose. 



IMPORTANCE OF 
THE PRODUCER 

An annual report on film is a public document. 
For this reason the film must be of the very best 
quality. Whether they realize it or not, the au- 
dience has been conditioned by attendance at 
their local theaters, and the company's film will 
be judged on a "Hollywood" basis. The presen- 
tation of the story, pictography, editing, sound 
track, special effects and over-all technique will all 
be compared in the audience mind with the- 
atrical standards. The company must therefore 
choose a reputable producer with the equipment 
and experience necessary for the production of a 
motion picture that can stand this comparison on 
a favorable basis. 

In the production of an annual-report film, as 
in the production of the report itself, there is a 
definite deadline. The picture must be ready for 
the annual meeting. Again as in the case of the 
annual report, the facts and figures that will be 
used in the picture are not ready until a relatively 
short time before the date of the meeting. It is 
necessary, therefore, to have a producer who can 
move very quickly when the facts are released. A 
large producer with extensive production facili- 
ties can telescope the various production steps 
without sacrifice of quality. A small operator, 
who may even have to rent production facilities, 
may not be able to command his own production 
schedules and fit the various pieces together within 
the limited time allowed for production. 



J 






HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



WHAT SHOULD BE FILMED 

The film version of the annual report will parallel 
to some extent the printed annual report, since 
the company shows the film for the same reason 
that it mails the report — to acquaint the audi- 
ence with what was accomplished during the year. 
Thus, it will deal with production, sales, labor re- 
lations, research, new properties acquired, earn- 
ings, where the money went, future outlook, the 
balance sheet, the company's standing in its in- 
dustry, promotion and advertising campaigns and 
any other activity that may go on in the organiza- 
tion. The selection of subjects is determined by 
the company alone or in conference with the pro- 
ducer. 

THE PRODUCTION PROCEDURE 

The producer of the film supplies a qualified 
picture-script writer, who first studies the whole 
situation and does whatever editorial research may 
be necessary and then prepares a content outline. 
This outline briefs the contents of the picture and 
suggests the treatment to be given. In visualiz- 
ing such abstract aspects of a business as profits, 
financial condition, depreciation and the like, con- 
siderable ingenuity is, of course, required. 

Early in the planning of the picture, a system is 
established for checking the outline and the sce- 
nario so that the film will be accurate and com- 
plete and will convey what the company wants 
conveyed. A competent producer will be very 
careful to see that the system of checking is thor- 
ough, makes the least demands on the fewest 
people in the company and does not retard pro- 
duction. 

Upon approval of the outline, the script writer 
prepares a detailed scenario of specifications. 
Once the scenario is approved by the company, 
actual production proceeds as with any other film. 

SHOWING THE FILM 

The film should be shown only under the most 
ideal conditions obtainable. A 35-mm. print 
with arc projection by a professional operator 
offers excellent results. The meeting must, of 
course, be held in a suitable location to permit 
this projection. The booklet, entitled How to In- 
sure a Successful Film Showing, published by the 
Motion Picture Bureau of the Aetna Life Affil- 
iated Companies, 151 Farmington Avenue, Hart- 
ford 1.5, Conn., should be read by those respon- 
sible for showing the annual report film. 



EXAMPLES OF 
ANNUAL REPORT FILMS 

In the following paragraphs, a brief account is 
given of the experiences of several companies in 
producing and showing their annual-report films. 
General Mills, Inc. In 1939, when this com- 
pany first conceived the idea of taking the annual 
meetings to its owners throughout the country 
(see page 236, where regional meetings are dis- 
cussed) , it used a series of slides to show the stock- 
holders how their money was used, what facilities 
they owned, what products were manufactured, 
what services were rendered, and what the returns 
were on their investment. In 1940, it used a 
thirty-minute, sound motion picture called The 
Year's Work. The film contained some sequences 
in animation explaining the balance sheet. In 
1941, it made a film entirely in animation. Dur- 
ing the war years it held no regional meetings and 
made no film. When General Mills resumed re- 
gional meetings in 1946, it developed a twenty- 
four-minute, 16-mm., sound motion picture in full 
color entitled Operation '46, for the stockholders' 
meetings. Employees also were shown the film. 
This picture brings to life the year's financial 
statement. Plants, products, services, personnel, 
research and future plans are all dramatically pre- 
sented. Chairman James F. Bell explains how 
General Mills' $298,000,000 sales income was uti- 
lized for raw materials, wages, taxes and other 
costs with an ultimate profit remaining of two and 
one-half cents on each dollar of sales. The film 
clearly shows the relationship of owners, manage- 
ment, employees and farmers working together for 
the common goal of quality goods and services, 
with a reasonable return to each of the four 
groups. 

Operation '46 was produced by the Calvin Com- 
pany, Kansas City, under the supervision of the 
General Mills' film department. The script was 
prepared under the supervision of the film depart- 
ment and the public relations department. The 
controller, president and chairman of the board 
all had a hand in determining the contents of the 
film. 

In a brief circular describing the film, General 
Mills explains that bookings are available without 
charge to organizations and schools. Distribu- 
tion is handled by the General Mills Film Library, 
Minneapolis 1, Minn. 

U. S. Steel Corporation. This company pre- 
pared a film version of its 1944 annual report for 

239 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



the 1945 annual meeting of stockholders. The 
contents of the film were determined by the public 
relations department, which consulted with the 
chairman of the board as to the general material 
in the report and with the finance department of 
the corporation as to the statistical and financial 
material. The final script was prepared by the 
Jam Handy Organization, Detroit, Michigan, pro- 
ducers of the picture. 

The film, called Behind the Annual Report, 
runs for fifteen minutes. It uses animated curves 
to tell the financial story. In one sequence, five 
white-hot steel ingots represent money the corpo- 
ration received for the years 1940 through 1944. 
Animated divisions of the ingots show the various 
items of cost in each of these years — a film inter- 
pretation of the "Income-Outgo" charts described 
at page 71. The portion of the report that deals 
with stockholders is portrayed as a parade of in- 
vestors from all classes of life. 




Courtesy, Jewel Tea Company, It 



Fi s . 153 

The picture, in addition to being shown at the 
stockholders' meeting, has also been shown Avidely 
in schools, clubs, banks and before other groups 
and organizations interested in the financial as- 
pects of American business. It has been used, as 
well, in training employees, and is still being 
shown by request in schools and to accounting 
groups. 

Jewel Tea Co., Inc. This company has used a 
twelve-minute, slide film with sixty-tliree slides, 
called The Story of 1946, to show the year's accom- 
plishments. In planning and preparing the film, 
the company kept its employees in mind as one 
240 



audience for whom the report was to have special 
significance. It concentrated upon selecting the 
most pertinent and simple facts and upon avoid- 
ing too much detail. The year had shown good 
results for the company, its employees and its 
stockholders, and the company tried to say exactly 
that. In doing so, it indirectly conveyed the im- 
pression that the gross receipts of the business had 
been fairly distributed. One of the slide films is 
reproduced above. The cartoon characters are 
similar to those used by this company in a chart 
of distribution of the sales dollar in its printed 
annual report. 

Two of the company's men worked directly 
with the producer, Sarra, Inc., Chicago, in mak- 
ing arrangements to meet production deadlines 
and supply materials when needed. In addition, 
there was an over-all committee of about ten 
company executives and four representatives of 
the producing company who passed first upon the 
theme and general approach and later upon the 
specific material and language used. 

The slide film was shown to all employees and 
has been used by the employment department in 
recruiting new employees from among graduating 
classes. A copy of it is kept at all the major 
branches of the business for periodic showings to 
new employees. Other copies are available for 
loan to educational institutions and businesses 
that are interested in seeing it. 

Penn Mutual Life Insurance Company. When 
the Penn Mutual Life Insurance Company de- 
cided that a sound-film version of its centennial 
report would be the best way of presenting the 
company's story before regional meetings of pol- 
icyowners, it began by making a brief outline of 
what the motion picture should contain. It then 
sought a producer. After that, it made a much 
more detailed outline of the technical material it 
wanted included in the motion picture as well as 
an outline of the historical and human values it 
wished to portray. 

A committee of officers held several conferences 
with the producer, Paul J. Fennell Company, 
Hollywood, on the mechanical and contents as- 
pects of the problem. The producer first pre- 
pared a script, which was checked and corrected 
by the company, and then a "story board" presen- 
tation. This is a series of still pictures that show 
how the story will develop. This, too, was ap- 
proved with minor corrections. The finished 
drawings were then started and the shooting of the 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



picture began. Two officers of the company went 
to the coast to approve the rushes and the remain- 
der of the pictures in still form. The final prod- 
uct was sent to the company's office in Philadel- 
phia for approval. 

The film, entitled 100 Years of Security, runs 
eighteen minutes. Its technique consists of a 
combination of commercial art and animation, 
resulting: in animated commercial art rather than 
cartoons. A character. "Charlie Chart," helps 
bring; the cold facts to life. 

The picture was shown by the company's gen- 
eral agents at regional meetings in ninety cities 
around the country in 1947. In addition, it has 
been shown in plants where the insurance com- 
pany has salary-savings contracts or pension trusts, 
to service clubs such as the Kiwanis and Rotary, to 
schools, public relations groups, personnel and in- 
dustrial relations groups, individuals interested in 
audio-visual education and others. 

TELEVISION VERSION 
OF ANNUAL REPORTS 

The first annual report ever to be presented over 
television was Report for '47 of the Union Oil 
Company of California, which was televised in 
nine major cities throughout the country on the 
evening of the clay of the 1948 annual stock- 
holders' meeting. "The television version of the 
annual report was first made in the form of a mo- 
tion picture. The film was shown at the stock- 
holders' meeting and to all of the Company's per- 
sonnel. It was also made available for showing 
to interested people in all parts of the country. 
The script for the film was prepared by the 
Public Relations Department of the company in 
cooperation with all the departments of the com- 
pany whose activities were covered by the report. 
The film used some of the material from the an- 
nual report and was, for the most part, based 
upon the section entitled "Earnings and Expendi- 
tures." It was narrated by the president of the 
company and included department reports from 
other members of the Executive Committee. 

REPORTS ON 
STOCKHOLDERS' MEETINGS 

In the past few years more and more companies 
have adopted the practice of sending a report 
of the annual meeting — or special stockholders' 
meeting, if there should be one — to stockholders 



for the benefit of absentees. The practice, once 
begun, is invariably continued, for it usually re- 
ceives the enthusiastic approval of the stock- 
holders. 

The styles or types of reports on annual meet- 
ings used by the various companies are: 



1. 

9 

3. 
4. 
5. 
6. 



Letter. 

Summary of proceedings. 

Chairman's remarks or president's report. 

Minutes of meeting. 

Stenographic report. 

Pictorial report. 



Each type is discussed below. 

LETTER FORM OF REPORT 

The simplest form of report of annual meeting is 
a letter to stockholders telling them what hap- 
pened at the meeting. The letter may be sent 
over the president's or secretary's facsimile signa- 
ture or may be printed or reproduced by a less 
expensive process. This type is particularly suit- 
able where there has been little discussion at the 
meeting but where some important corporate mat- 
ter was voted upon, such as a split-up of the capi- 
tal stock. The letter is a means of informing the 
stockholders of the action and how it affects them. 
The letter would also show the results of the elec- 
tion for directors. 

SUMMARY OF PROCEEDINGS 

This method of reporting on an annual meet- 
ing offers a summary of factual matters of time, 
place and attendance, the president's or chair- 
man's statement, the resolutions passed or de- 
feated, the vote count and any discussion. 

The best reports of this type are broken up into 
small paragraphs with headings, and enlivened by 
a few direct quotations. An excerpt from a sum- 
mary of an annual meeting of stockholders of The 
Budd Company illustrates the method. 

Inventories 

The same stockholder then asked if there were 
signs of a more balanced inventory. The President 
replied that the inventory is not considered unbal- 
anced. While inventories of some articles were larger 
than the Company wished, that condition was due to 
the unavailability of parts to complete certain prod- 
ucts. He added that it was his belief that inventories 

241 



i 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



would decrease over the nexi lour months. This 
stockholder then inquired why there was a deficit in 
1946 when the Company had such a big backlog. 

"Last year's losses have no relation to the backlog," 
Mr. Build answered. "They were primarily the re- 
sult ol disorganized conditions in our own business, 
in our suppliers' business, and in our customers' busi- 
ness — the steel strikes, coal slrikes, and other inter- 
ferences with production. We had a new plant to 
start and five or six thousand ex-service men to re- 
employ. We had to have more machinery and set 
up new operations. We have not taken any business 
on which we do not expect to make a profit." 

If a company plans to distribute a summar- 
ized report, a competent member of the public- 
relations staff should cover the meeting. Many 
meetings are busy, interesting sessions with con- 
siderable give-and-take between stockholders and 
management. Wherever possible, stockholders 
should receive a colorful, fast-moving and highly 
readable account of what took place at the meet- 



CHAIRMAN'S REMARKS 
OR PRESIDENT'S REPORT 

A number of companies send stockholders a copy 
of the chairman's or president's address at the an- 
nual meeting of stockholders. Although such re- 
ports contain useful information, they usually lack 
reader appeal. Unless the remarks are expressed 
in an easy-to-read style and are broken up into 
short paragraphs with appropriate headings, there 
is great likelihood that the statement will not be 
read. 

A variation of this method is to accompany the 
statement with a brief letter giving a resume of 
what happened at the meeting. 

MINUTES OF MEETING 

Under this method, the minutes of the meeting as 
prepared for the corporate record are reproduced 
in pamphlet form and sent to the stockholders. 
The minutes usually give the results of a vote 
without the arguments pro and con. They tend 
to emphasize the management's viewpoint, and 
therefore are less effective in building*; <jood feel- 
ing among recipients of the report than an edited 
stenographic report, such as is described below. 

To illustrate the shortcomings of this method, 
an example from an actual report of proceedings 
is cited. A stockholder opposed a resolution in- 
creasing the fee paid to directors for attending 
242 



In the minutes her reasons were re- 
ported as follows: 



Miss of spoke in opposition to the reso- 
lution ratifying the increase in the basis of directors' 
fees, on the grounds that the directors' self interest 
should impel them to attend directors' meetings with- 
out compensation, and that an increase from the gen- 
eral basis of $20 to $50 for each meeting which the 
directors attend smacks of hidden taxes and "New 
Dealisni." 

The president refuted her arguments; the minutes 
quoted his reply verbatim. Since only the gist 
of the stockholder's remarks had been included, 
the president's answer should also have been sum- 
marized. There would then be no danger that 
stockholders reading the report might consider it 
biased. 

One company that uses the minutes form of re- 
porting, collates the questions asked by the stock- 
holders and the chairman's replies in summary 
form on the last two pages of the report. 

STENOGRAPHIC REPORT 

This type of report is without doubt the most 
effective way of informing stockholders of what 
went on at an annual meeting. It was first used 
by The Standard Oil Company (New Jersey) in 
1941 as an experiment in stockholder relations. 
The stenographic report of the full proceedings, 
including questions and answers presented during 
the discussion, was printed in a company publica- 
tion that was mailed semi-annually to stockhold- 
ers. The report received such enthusiastic re- 
sponse that it was made a regular feature of the 
company's stockholder-relations program. It is 
sent out each year independently of other com- 
pany literature. An excerpt from a recent steno- 
graphic report is reproduced to show the style. 

What dividend can we expect to get this year as 
compared to last year? 
The President: At the last dividend meeting of the 
Board of Directors, a dividend was declared of 
$1.50 per share for the first half of this year. 

I assure you that no Director here knows what 
they are going to vote to pay next time. I think 
the management looks at it this way: we are in a 
business with an expanding frontier, so to speak, 
and the policy that we have followed is to plow 
back into the business a good part of the money 
earned. I believe this has been to the interest of 
the stockholders. 

We realize that the stockholder is naturally in- 



A 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



terested in setting a fair return. As a stockholder, 
I assure you that I am. I think that we shall con- 
tinue to pay out to the stockholders the largest 
amount we can, at the same time keeping the Com- 
pany in a good liquid position where it can take 
opportunities that arise in an expanding industry. 
At the present time, the $1.50 represents action 
for the first half of the year. Whether we shall be 
able to repeat that dividend, or enlarge it or de- 
crease it, will depend a good deal on the last half. 
As I indicated earlier, in my judgment, we are look- 
ins; forward to a rather s:ood second half-vear. 

Same Stockholder: That sounds very encouraging. 
We appreciated it when the company advanced the 
dividend date from near the end of the month so 
that now we get it on the 12th. I should like to 
submit for consideration by the management the 
question of whether we could have quarterly divi- 
dends instead of semi-annual. 

The President: I am glad you raised that question. I 
have been urging that myself, but the other Direc- 
tors have beaten my ears down on this issue every 
time I raise it. 

(Laughter.) 

Same Stockholder: Don't you think we might put that 
on the ballot next year and get an expression of 
opinion? 

Another Stockholder: May I suggest a vote on that 
right now? I think that is a very good question. 

The secretary's department is responsible for 
the preparation of the report, but the public rela- 
tions department usually does the actual work. 
Arrangements are made with a reporting service 
for two reporters to attend the meeting and report 
it verbatim. A stenographer or other employee 
of the company sits near the reporters to coach 
them on the identity of speakers. Arrangements 
are also made for photographers to attend the 
meeting, and shots are included in the report. 

The transcript of the stenographic record is sent 
to the secretary, who turns it over to the public re- 
lations department. The record is edited slightly 
for conciseness and to eliminate unessential mat- 
ter. As both officers and stockholders make ex- 
temporaneous remarks during the question and 
answer periods, some editing for grammatical ex- 
pression and clarity is always necessary. In the 
opinion of the Standard Oil Company (New Jer- 
sey) management, it is best to omit the names of 
the stockholders and merely report that the re- 
marks are from a stockholder. 

A short covering letter from the chairman of 
the board or the president precedes the steno- 



graphic report. This usually refers to the pur- 
pose of the report, the number of stockholders 
present and the amount of shares represented in 
person or by proxy at the meeting. 

PICTORIAL REPORT 

Monsanto Chemical Company published a pic- 
torial report of an annual meeting, consisting of 
twenty-five pages and front and back cover. It 
began with this brief explanation on the inside of 
the front cover: 

The stockholders of Monsanto Chemical Company 
at their annual meeting on March 26, 1946, were pre- 
sented with the facts concerning this organization's 
stewardship during 1945.. 

Profits, expenditures, new developments, plans for 
the future, employe problems, even discouragements, 
were presented in executive reports, graphs, and dem- 
onstrations. 

In this book of three speeches and many pictures, 
the meeting is pictorially reported to you — a stock- 
holder. 

The responsibility for the preparation of this 
report usually rests with the public relations de- 
partment. The contents are determined by the 
executive in charge of preparing for the annual 
meeting. The public relations department plans 
the layout on the basis of the executive reports 
and demonstrations to be presented at the 
meeting. It also prepares all copy with the ex- 
ception of the speeches by executives. The treas- 
urer or appointed subordinate checks any figures 
in the report. A high-ranking executive gives the 
final approval of copy and layout. 

A report of this nature must be planned in con- 
junction with the annual report to stockholders, 
because two elaborate, illustrated reports would 
be wasteful and would evoke criticism. The fol- 
lowing announcement in the annual report to 
stockholders explains how the two reports supple- 
ment each other: 

Following our custom of recent years, this report 
is confined to a financial review of 1945. A compre- 
hensive report on all other phases of the Company's 
operations will be made at the annual meeting of 
shareholders in St. Louis on March 26. At this meet- 
ing, the Company's officers will review the outlook 
for the future and other points believed to be of in- 
terest to the owners of the Company. An account of 
the meeting will be mailed to shareholders who are 
unable to attend. 

243 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



Monsanto's annual report is well designed and 
is just what it purports to be — a financial review. 
At the annual meeting, the full story of the com- 
pany's activities is told in talks, charts, graphs and 
pictures. The pictorial report of the annual 
meeting tells the story to absent stockholders. 

PREPARATION OF REPORTS 
ON STOCKHOLDERS' MEETINGS 

As a rule, there is no day-to-day schedule prepared 
for producing the report of an annual meeting, as 
there must be for the annual report. It should, 
however, be prepared expeditiously and distrib- 
uted as soon as possible after the meeting. In 
many cases, there is a lapse of four to six weeks 
between the meeting and the mailing date. This 
period is too long. 

As with the annual report, proofs of the report 
on a stockholders' meeting are passed around 
among the directors, officers and legal department 
for review. Each person receiving a set of proofs 
is asked to indicate corrections and comments, 
sign his initials and return the proofs to the indi- 
vidual who is responsible for putting out the re- 
port. Disagreements over changes or corrections 
are ironed out in conference. 

DISTRIBUTION OF REPORT 
ON STOCKHOLDERS' MEETING 

The reports, although planned primarily for 
stockholders who are unable to attend the meet- 
ing, are sent to all stockholders. They are not, 
as a rule, distributed to employees. Some com- 
panies have furnished college students taking 
courses in commerce with copies of their reports 
on annual meetings as practical demonstrations of 
corporate procedure. One company has distrib- 
uted as many as 10,000 copies annually to stu- 
dents. 

The following distribution methods have been 
used: 



1. 

9 



As an enclosure with a dividend. 
As a separate mailing. 

As part of interim reports or regular literature 
going to stockholders. For example, G F 
Stockholder News (General Foods Corpora- 
tion) has an annual-meeting edition. Con- 
solidated Edison Company of New York, Inc., 
includes its report on the annual meeting of 
stockholders in its News and Views for Stock- 
holders. 



SPECIAL LETTERS 
TO STOCKHOLDERS 

The special letters referred to here are voluntary 
communications mailed by management to in- 
form stockholders of developments that concern 
their interests. They do not include official let- 
ters sent to obtain stockholder consents, or notices, 
mailed to meet some charter, statutory or by-law 
requirement. The special letter is used by more 
companies than any other type of stockholder 
communication, except the annual report, interim 
report and dividend enclosure. 

Here are some of the events that may call for a 
special message to the stockholders: 

1. A strike or other development that has re- 
ceived unfavorable public notice. The com- 
pany uses the special letter to give the stock- 
holders the facts and to explain its position and 
policy. 

2. A catastrophe at one of the plants. 

3. Pending legislation or political action that 
directly affects the company's prospects. The 
company can make a direct appeal to stockholders 
to cooperate in opposing or supporting the pro- 
posed measure. Harold S. Sutton, Treasurer of 
Consolidated Edison Company, in his sparkling 
address at a forum on management-stockholder re- 
lations referred to at page 230, pointed out that 
back in 1935, when the drastic holding-company 
bill was before Congress, one of the large, national 
public-utility holding companies took great pains 
to apprise its stockholders of the threat to their 
investments. As nearly as the company could 
find out, only about 1 in 70 stockholders took the 
trouble to write their Representatives in Washing- 
ton. And of those who did write, a few actually 
favored the legislation! 

4. International events that touch the com- 
pany's investments abroad or its foreign trade. 

5. The launching of a new and extensive ad- 
vertising campaign, radio program or other pub- 
lic-reaching activity. 

Such letters are, invariably, printed or processed 
letters on the company's letterhead or on "Office 
of the President" stationery, with facsimile signa- 
ture. They should be kept short — not more than 
a page long. If the story requires more space, a 
folder or booklet may accompany the letter. 

STOCKHOLDER MAGAZINES 

Any regular publication for stockholders that ap- 
pears under an established title and format is, for 



244 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



purposes of this discussion, classed as a stockholder 
magazine. The fact that the publication may be 
enclosed with a dividend does not affect the clas- 
sification, for it would be sent out whether the 
dividend was mailed or not. 

The great advantage of a regular, stockholder 
publication is its adaptability for any type of mes- 
sage that the company wants to send its stockhold- 
ers. News items, educational matter, periodic 
progress reports, letters from stockholders an- 
swered by the company officers, product facts, 
photographs of regional meetings of stockholders, 
reports of stockholders' meetings — in fact, any 
subject of interest to the stockholders can be cov- 
ered in the stockholder house organ. 

General Foods Corporation's G F Stockholder 
News is an outstanding example of this type of 
communication. It was started as a miniature 
tabloid in 1937. Today it is the mainstay of GF's 
broad stockholder-relations program. It is used 
for interim financial reports and for reporting 
what transpires at the stockholders' meetings. At 
quarterly dividend dates, it is produced in minia- 
ture form (6" X 8") , is marked "Financial Edi- 
tion" because it contains the interim report and is 
mailed as a dividend enclosure — a postage-saving 
expedient. At other times, it is magazine size 
(81/4" X l 11 /?") and is labeled "Home Edition." 
Each issue, whether full size or miniature, con- 
tains a final page with recipes and other "Home- 
maker News." The magazine is always amply 
illustrated and interestingly laid out. No two is- 
sues are exactly alike in type of stories or arrange- 
ment. 

Other effective stockholder magazines are: 

Stockholder News, Scott Paper Company. 

Stockholder News, Johns-Manville Corpo- 
ration. 

News & Views for Stockholders, Consoli- 
dated Edison Company of N. Y. 

Horizons, General Mills, Inc. 

Stockholders' Bulletin, The Borden Com- 
pany. 

A company may publish an unusually good em- 
ployees' magazine, or its stockholder list may not 
be long enough to warrant publishing a separate 
organ. Under these and other circumstances, sev- 
eral companies have found a well-prepared em- 
ployee publication also effective for regular or oc- 
casional distribution to stockholders. Sometimes 
a special stockholders' edition of the company 
paper is used in place of a stockholder magazine. 



COMPANY AND 
INSTITUTIONAL BOOKLETS 

One type of company booklet that is sent to stock- 
holders has already been referred to — the special 
illustrated booklet that accompanies the annual 
report. See page 18. 

Another type is a story about the company, its 
products, services, financial structure, policies and 
the like. The publication may be sent to new 
stockholders along with a welcoming letter or it 
may be offered in the welcoming letter to stock- 
holders who return the enclosed prepaid postcard 
asking for it. Consolidated Edison Company uses 
the latter plan in distributing its forty-eight-page, 
834" X 12", illustrated booklet entitled Serving 
New York. This beautiful brochure, printed in 
color, uses charts, graphs, photographs, maps and 
other "annual report" techniques to tell about the 
company. It gives financial and statistical in- 
formation for fifteen years back. According to 
Harold S. Sutton, Treasurer of the company, less 
than half of the new stockholders take the trouble 
to sign the post-paid card and drop it in the mail 
box. This is just another illustration of the point 
made earlier in this chapter — because stockhold- 
ers are people, you can only expect them to act 
like people and to neglect their own best interests 
at times. 

American Telephone and Telegraph Com- 
pany's Facts About the Bell System is sent to all 
new stockholders except corporations, banks and 
trust companies, brokers, stockholders who have 
reopened accounts within two years and stock- 
holders whose ownership is not completely new. 
For example, if there is a transfer of stock from an 
individual to a joint account and that individual 
is one of the joint-holders, the booklet is not sent. 
A.T.&T. ordinarily revises this booklet each year 
after the Company's annual report has been is- 
sued. 

Armstrong Cork Company sends an illustrated 
booklet entitled Partners in Business to new stock- 
holders at the time of their first purchase of stock. 
It includes general information regarding the 
company, its history, policy and products. The 
booklet is revised from year to year. Old stock- 
holders are invited in the annual report to send 
for the latest edition of the pamphlet. 

Other booklets currently used for introducing 
the company to new stockholders include: 
A Short Story About Standard of California. 

245 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



The Story Behind a Trade-Mark, New Jersey 
Zinc Company. 

The facts included in institutional booklets are 
interesting not only to new stockholders but also 
to employees, their families, trade and business 
contacts, civic leaders in the community, libraries 
and customers. II handled with reasonable intel- 
ligence, one booklet can briny, out the points of 
interest to all of these groups. New Jersey Zinc's 
The Story Behind a Trade-Mark was prepared, for 
example, as a multi-purpose booklet. 

OTHER MAILINGS 
TO STOCKHOLDERS 

A great variety of printed material beyond the 
types previously discussed, is mailed to stockhold- 
ers. The purpose may be to pass on information 
of a timely nature to the stockholders, to stimulate 
stockholder interest in the company or merely to 
acquire the goodwill of the stockholders. Some 
examples are listed below: 

1. Articles, statements, speeches or testimony of 
a company officer before a Government com- 
mittee on a subject affecting the industry or 
the company. 

2. Anniversary booklets reviewing the achieve- 
ments of the company during its existence. 

3. Booklets and other material prepared pri- 
marily for employees, dealers or patrons. 

4. The employee magazine, sent regularly or 
when an issue contains some information of 
special interest to stockholders. 

5< Reprints of advertisements. 

6. Calendars, diaries, maps, recipes, patterns or 
other "give-aways." Some of these are mailed 
with the annual report. 

7. New product announcements to get stock- 
holders to look for their appearance on retail 
counters. 

GIFTS AND SPECIAL OFFERS 
TO STOCKHOLDERS 

If the company's product is adapted for household 
use, a sample box or package sent to new stock- 
holders accomplishes these purposes: (1) It ac- 
quaints the stockholder with the company's prod- 
ucts, (2) it gets his help in boosting the product, 
(3) it makes a possible purchaser of him, (4) it 
captures his goodwill. General Mills, Inc., Bristol- 
Meyers Company and Scott Paper Company use 
this technique. 
246 



McKesson-Robbins, Inc., made a timely offer of 
a bottle of Tartan Suntan lotion to its stockhold- 
ers with its summer dividend. The dividend en- 
closure explaining the product, contained this 
statement: "Tartan is one of over 225 McKesson 
quality products which you can use with confi- 
dence and recommend to your friends. If you 
would like to try Tartan without cost or obliga- 
tion, return the reply card for a full-size bottle." 
The reply card asked for the name and address of 
the stockholder and of his druggist. 

When the demand for portable typewriters far 
exceeded production, Remington Rand allocated 
some of the machines for immediate delivery to 
stockholders and offered them to stockholders 
through a dividend enclosure, for a limited time. 

General Foods Corporation prepared a Christ- 
mas box of its products and offered it to stock- 
holders at a price considerably below the aggre- 
gate cost of the assembled items. 

To accommodate stockholders and at the same 
time encourage their use of the company's prod- 
ucts, Standard Oil Company of New Jersey sent its 
stockholders an application blank for an Esso 
credit card. This card enables the stockholders 
to purchase their gasoline needs on credit in the 
states that are served by Esso Marketers. As a fur- 
ther accommodation, the company arranged for 
honoring of Esso cards in territories not served by 
subsidiaries. 

WELCOME LETTERS 

TO NEW STOCKHOLDERS 

Long before corporations began to give serious at- 
tention to improving stockholder relations, some 
companies had adopted the practice of sending let- 
ters of welcome to new stockholders. It is one of 
the most satisfactory ways of establishing friendly 
relations from the start with the owners of the 
business. It affords an opportunity to show small 
stockholders that they get the same recognition as 
large ones. Companies that use the welcome let- 
ter say that they get many unsolicited letters of ap- 
preciation from stockholders, some even showing 
interest in the company's products. Incidentally, 
the letter helps check the accuracy of addresses 
furnished by banks and brokers for the payment 
of dividends. 

Perhaps the only shortcoming of this approach 
to improving stockholder relations is that in some 
instances an old stockholder will get the letter. 
This may happen where the transfer has come 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



about through a change of name. Or the real 
owner may not get the letter if the stock stands in 
the name of a nominee. 

A few companies have felt that the benefits re- 
ceived do not justify the cost. 

QUALITIES OF 

THE WELCOME LETTER 

The welcome letter is a goodwill letter. It must 
therefore be warm, friendly, personal. A person- 
ally typed letter is warmer than a printed one, so 
is a processed letter with a perfectly matched fill 
in. A letter signed by the president, chairman of 
the board or other top officer makes a better im- 
pression than one signed by lesser officials. 

If you plan to use a welcome letter, you will 
have to decide whether to write it on special let- 
terhead, on regular letterhead or on note-sized 
stationery. You will want to consider whether a 
four-page letterhead with the letter on page one 
and the inside and back pages devoted to the com- 
pany's business and products, will serve best. 
You may even think of combining a welcome 
letter with an institutional booklet telling, more 
about the company. All these ideas have been 
used. It is difficult to say which is most effective. 
In choosing; anions; these methods, have this in 
mind: You are sending the letter essentially to 
gain the friendship and confidence of the stock- 
holder. Test whatever you say in the letter 
against that objective. 

Here are some ideas that might be drawn upon 
in composing the letter: 

Welcome the stockholder. 

Mention the number of stockholders. 

Tell him briefly about the company's divi- 
dend record. 

Make a bid for his support of the product. 

Point out the mutual interests of stock- 
holders, employees, customers, dealers 
and management. 

Offer to send him the latest copy of the an- 
nual report or any other literature de- 
signed for him. 

Tell him the company wants to keep him 
informed. 

Say how you will keep him informed. 

Include timely information on company 
policy. 

Ask him to advise you of any changes in his 
address. 



Invite him to visit the plant. 

Make him feel you will be glad to have his 
suggestions and comments on the com- 
pany's work. 

LETTERS TO STOCKHOLDERS 
WHO INCREASE THEIR HOLDINGS 

A stockholder demonstrates his confidence in the 
company when he increases his holdings. A let- 
ter to such a stockholder strengthens the tie with 
the company. It may be brief — just enough to 
show that you have observed the purchase and are 
pleased. This is also an appropriate place to re- 
peat your invitation to visit the plant. 

REGRET LETTERS 
TO STOCKHOLDERS 

Only about 25% of the companies that send wel- 
come letters to new stockholders, send regret let- 
ters to those who dispose of their holdings. One 
reason is that such letters are troublesome to 
handle. A stockholder may have split his account 
among various members of the family or have 
transferred his shares to a nominee. Unless there 
is careful supervision, regret letters will be sent to 
people who have never actually parted company 
with the corporation. Of course, the letter can 
be worded to take care of the possibility of a trans- 
fer without a change of beneficial interest. 

In spite of shortcomings, a company will con- 
tinue to use the regret letter if it is eager to retain 
the friendship of departing stockholders. Some 
companies that sell household products or furnish 
a household service, for example, always send 
termination letters. 

One large company says that in some instances 
the regret letter constitutes a service to its share- 
holders. For example, if the stockholder's cer- 
tificates have been lost or stolen or pledged as 
security for a loan and sold erroneously, the termi- 
nation letter is important news to him. 

Regret letters follow this pattern: 

Express regret that the stockholder's name 
has been removed from the stock list. 

Indicate the possibility that the stockholder 
is still holding a beneficial interest. 

Make a bid for continued friendship. 

Tactfully ask the stockholder to tell why he 
disposed of his stock (unless the reason is 
personal) , and enclose a reply envelope 

247 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



and form on which the reason can be 
checked. 
Offer to keep him informed about the com- 
pany. 

CONTACTS WITH STOCKHOLDERS 
THROUGH SOLICITATION OF PROXIES 

Most companies go about soliciting proxies for the 
annual or special meetings of stockholders as 
though the stockholders were machines. Some- 
times management is startled into the need for hu- 
manizing this contact — for example, when the 
proxies just trickle in and there is danger of hav- 
ing to postpone the meeting for lack of required 
representation. 

One company that had to postpone a special 
meeting; of stockholders twice for lack of sufficient 
proxies, tried the simple device of using colored 
paper and a distinctive format in its follow-up. 
The idea worked; the company received more 
than the necessary number of signed proxies three 
weeks before the meeting was to be held. 

Your company may be sure of a quorum with- 
out the proxies of small stockholders. Neverthe- 
less, the expenditure for the mailing of proxies 
must be made. Why not use it to improve stock- 
holder relations? Ask some public-relations peo- 
ple for their ideas as to how to humanize the 
request for proxies. Changes can be made in cur- 
rent practices without in any way interfering with 
what the lawyers say are the "musts" for notices, 
proxies and proxy statements. 

ACKNOWLEDGMENT OF 
PROXIES; FOLLOW-UP 

Some companies feel that those who have sent in 
signed proxies and have in that way expressed 
their approval of the management, deserve an 
acknowledgment. This acknowledgment may be 
made: (1) By personal letter or postcard to indi- 
vidual stockholders or (b) by general acknowl- 
edgment in the report of what transpired at the 
meeting or in the following dividend notice, in- 
terim report or stockholder house organ. 

The personal letter, of course, is most effective 
from the standpoint of its value as a goodwill 
builder. Such a letter is usually sent out after the 
meeting has been held, and takes the following 
form: 



Thanks the sender for his cooperation. 



Tells how many shares were represented at 
the meeting. 

Gives some brief indication of what tran- 
spired at the meeting. 

In some instances, separate acknowledgment let- 
ters are prepared for individual small stockhold- 
ers, individual large stockholders, firm stockhold- 
ers, and brokers and nominees who have sent in 
proxies. 

Some companies send out follow-up letters for 
proxies whether or not they are in urgent need of 
them to establish a quorum at the meeting. A 
large representation at the meeting is the objec- 
tive of many companies that are constantly trying 
to improve the relations between stockholders and 
management. Others follow up only individuals 
and firms who hold more than a certain number 
of shares, say 500 or 1 000. Acknowledgment with 
thanks, after the follow-up has brought results, is a 
good gesture. 

SURVEYS 

AMONG STOCKHOLDERS 

Surveys among stockholders have been used to a 
limited extent. Most of them have dealt with the 
annual report. The methods of conducting such 
surveys and their results have been treated fully 
in Chapter 17. 

Some companies have used their stockholder 
lists to obtain information on new products, pro- 
posed trade names and the like. When such sur- 
veys are made, it is possible to get personal infor- 
mation about stockholders that would otherwise 
not be obtainable. For example, a company can 
ask for the sex, age group and occupation of a 
stockholder who is giving his opinion in a new- 
product test, and will probably get an answer. 
This type of information can also be obtained in 
personal-interview surveys. 

A company that is just instituting a program of 
stockholder relations would do well to make a 
sample survey of its stockholders every six months. 
In this way it can trace the effects of its efforts. 
Sampling one letter of the alphabet among the 
list of stockholders may be sufficient. In each 
successive, sample survey, another letter may be 
used. 

The opinion survey must be conducted scien- 
tifically or it will not yield dependable results. 
Also, if it is not handled properly, it may hurt 
stockholder relations. Therefore, it is advisable 



248 



. 



HOW TO BRING STOCKHOLDERS AND MANAGEMENT TOGETHER 



to let someone trained in public relations conduct 
the survey. Certainly, only a person who knows 
the scientific requirements of survey questions 
should construct the questionnaire. 

GETTING STOCKHOLDER 
OPINION ON POLICY 

Corporations have at times voluntarily asked 
their stockholders to vote, at annual meetings or 
through special ballots, upon questions that did 
not require stockholder opinion or consent. Such 
invitations to participate in management have 
been made as a matter of policy and to better 
stockholder relations. For example, some com- 
panies have asked their stockholders to ratify the 
directors' choice of auditors. Others have asked 
the stockholders to approve certain changes in 
employee-benefit plans and bonus plans. Con- 
solidated Edison Company once balloted its stock- 
holders to get their views on competitive bidding 
in selling new issues of securities. At the follow- 
ins stockholders' meetings it announced the re- 
suits: 89% of the stockholders were in favor of 
letting: the directors decide how to sell new issues. 
As the trend toward greater attendance at stock- 
holders' annual and regional meetings continues, 
more and more proposals will be offered by stock- 
holders. Management will feel that some of these 
proposals should, as a matter of policy, be put up 
to the stockholders. The directors must judge 
carefully whether such solicitation of stockholder 
advice will improve stockholder relations without 
thwarting management. 

REPLIES TO 
STOCKHOLDERS' LETTERS 

A company that has succeeded in making stock- 
holders feel close to management will get more let- 
ters from stockholders than one that does nothing 
to awaken stockholder interest. A policy for 
replying to stockholder inquiries, criticisms and 
suggestions should be established by every corpo- 
ration, whether it has a fully developed stock- 
holder-relations program or not. This policy 
should take into account the following attitudes 
of progressive management: (1) The letter gives 
management an opportunity to show that it recog- 
nizes the stockholders as owners for whom man- 
agement is working, (2) the holder of one share 
deserves as much consideration as the holder of 



many, (3) goodwill is fostered if a prompt and 
complete reply is given and if the letter is signed 
by an important officer, (4) the reply must be 
personal and friendly, (5) all such letters should 
be seen by whoever has charge of stockholder rela- 
tions. 

The fact that a personal reply is essential does 
not exclude the use of form paragraphs. For ex- 
ample, a carefully thought out and constructed 
response to each of the criticisms that occur from 
time to time, can be used repeatedly with slight 
modifications. Most corporations can use such 
adaptable form letters in answering criticisms con- 



Dividend policies. 

Labor policies. 

Salaries of executives. 

Executive-bonus and incentive-payment plans. 

Employee-benefit plans. 



INVITATIONS TO 
VISIT THE PLANT 

One effective way of making stockholders feel that 
they are fellow sponsors of the enterprise is to in- 
vite them to visit the plant and to treat them like 
part-owners when they accept the invitation. The 
visitors can be handled most satisfactorily if man- 
agement knows in advance that they are coming. 
For this reason, most companies that use this 
method of building stockholder goodwill ask 
stockholders to notify a designated person of the 
proposed visit. 

Some companies include announcements in 
their annual notice of stockholders' meeting that, 
after adjournment of the meeting, stockholders 
will be invited to inspect the company's plant. 
Other companies include standing invitations in 
their letters of welcome to new stockholders or in 
their annual reports. 

In a dividend-enclosure pamphlet describing an 
employee seminar training course, the Visking 
Corporation invited interested stockholders to at- 
tend the seminars. Advance notice to the super- 
visor of training was requested. 

The opening of a new plant, building or office 
is a good occasion for a general invitation to stock- 
holders to inspect the property and meet the man- 
agement. 



249 



ANNUAL REPORTS 
TO EMPLOYEES 



CHAPTER 19 



Today, when the annual report to stockholders is 
being planned, most boards of directors raise the 
question: Shall we also report to the employees? 
For purposes of this chapter, we shall assume that 
a report to employees is advisable. The next 
question the board raises is: Shall we prepare one 
report that will go to stockholders and employees 
or shall we issue separate reports? 

The discussion in this chapter should help di- 
rectors make a choice. The arguments in favor of 
a single report and those in support of separate 
reports are given after the discussion, at page 276. 

MANAGEMENT'S 
BASIC JOB 

Polls of public opinion 1 and employee surveys 2 
have shown that employees think their companies 
earn considerably more than the company reports. 
Polls also show that when the average worker is 
asked what he considers a fair per cent of net 
profit, he will usually mention a rate higher than 
that reported by the company. 3 When shown ac- 
tual figures that fall far below what he considers 
is a fair return, he will still maintain that the com- 
pany makes too much money. Unreasonable? 
Perhaps. But that is the condition management 
must face. It arises from (1) employees' failure 
to understand the realities of competitive busi- 



1 See Chapter 2. 

2 "What the Factory Worker Really Thinks," Factory, Dec. 
1945 and Jan. 1946; "An Appraisal of the Steel Industry," con- 
ducted dining May 1946 by Opinion Research Corporation; sur- 
vey by Rochester Gas &: Electric Corporation 1947; Wage Earner 
Forum conducted by Research Department of MacFadden Pub- 
lications, Inc., New York, 1947. 

For a discussion of methods of making surveys of employee 
opinions, see A Preliminary Report of Employee Opinion Sur- 
veys, released by the Association of National Advertisers and the 
American Association of Advertising Agencies in connection 
with their "Program for American Industry." This report 
mentions the following leaders in the work of conducting em- 
ployee surveys: Houser Associates, McKinsey & Co., Robert N. 
McMurry, Opinion Research Corporation, Psychological Corpo- 
ration, Elmo Roper, and. Charles C. Stech. 

3 See page 14. 

250 



ness, (2) lack of confidence in figures presented by 
management. 

Management's basic job, then, is to correct mis- 
conceptions, create understanding and build con- 
fidence in its reports. Before it can hope to make 
headway in this task, it must know something of 
the causes of the existing condition. 

WORKERS' SOURCES 
OF INFORMATION 

The worker gets his information from three prin- 
cipal sources: (1) Government, (2) union and 
(3) employer. The press serves all three sources 
and brings the information to the worker as a part 
of the public. Let us see how each of these 
sources operates in forming employee opinion. 

GOVERNMENT INFORMATION 

The government is theoretically neutral. It 
makes available factual, statistical information on 
wages, employment, corporation profits, cost of 
living, prices and other economic factors. The 
various governmental departments that compile 
the figures also prepare newspaper releases when 
the statistics are published. Each newspaper 
writes its own headlines for the stories based on 
the releases. These make an impression on the 
worker, as on the general reader. But does the 
average employer stop to question the impression 
made by the news account? Raiely. The figures 
are averages or for "all industry," and that lets 
him out. He may use some of the statistics in his 
annual report (for examples, see page 210) , but 
he does not use them to give his version of the 
economic facts reflected in the figures. 

Occasionally, especially when Federal labor or 
tax legislation is pending, the government is again 
a source of information for the worker. This 
time it is not a cold, statistical release that reaches 
the newspapers but a journalist's report of a dra- 
matic highlight. It is flashed to the public by 
radio as well as press. If the story hits a particu- 



ANNUAL REPORTS TO EMPLOYEES 



lar employer, he may act quickly to correct pos- 
sible misunderstanding. If it hurts a particular 
industry or business generally, some employers' 
organization may answer to avoid misinterpreta- 
tion. On the whole, however, neither the indi- 
vidual employer nor the organization that repre- 
sents him acts quickly enough or often enough to 
counteract misleading information. 

When a strike reaches such proportions that 
government action becomes imminent, employers 
usually wake up to the need for getting their ver- 
sion of facts and figures to employees and the pub- 
lic. The time, however, is not then propitious 
for removing erroneous impressions, especially 
among the employees. 

HOW THE UNIONS GET 
INFORMATION TO EMPLOYEES 

Labor unions have their well organized programs 
for educating the workers in the facts of business 
life — as the union sees them. The best profes- 
sional guidance of economists, public-relations 
people and others has been used in devising these 
programs. High-grade personnel has been used 
to do the research and to apply the techniques. 
Printed literature, educational films, phonograph 
recordings of skits, speakers, forum leaders and 
sound-track artists have been used to set the mes- 



about the results of operations. Their indiffer- 
ence to employee misunderstanding is as striking 
as the indifference of the masses of the American 
people to great national issues. It is up to the lead- 
ers of industry, as it is up to leaders in each com- 
munity, to stir people out of their apathy. 

A few companies have given thought to the 
problems of correcting misconceptions and of 
reaching employees with understandable facts. 
Their employee magazines show a serious attempt 
to cope with the problems. Their annual leports 
show an effort to reach employees with a readable 
and understandable message. Some of their 
pamphlets and monographs have attempted to 
explain why the American worker has more and 
works less than other workers in the world. In 
various ways, their special publications and ad- 
vertisements have tried to contradict false beliefs 
with facts. 

But companies that have presented facts to em- 
ployees are the exception. Certainly, the present 
lack of understanding among the mass of workers 
shows that not enough has been done. Possibly 
the material that has been distributed has not 
been read. The pamphlets referred to have been 
beautiful, dignified, graphic and fairly easy to 
read. Contrasted with labor organization litera- 
ture, they have definitely been "high class." 



Literature published by the unions is simple, 
direct, easy to read and graphic. If the experts 
say that a funny paper is the right technique for a 
particular message to a certain group, top-flight 
talent is hired to get it out. If a series of labor 
radio programs is planned, a drive is made to get 
a labor audience to attend. Notices in the labor 
and public press, throw-aways, handbills give 
plenty of publicity to the event. 

Labor unions do not distribute all of their liter- 
ature without charge. In some instances, mem- 
bers pay for new pamphlets; nonunion workers, 
editors and commentators, schools and others get 
them for nothing. 

These are techniques that the labor unions find 
are effective. 



EMPLOYER INFORMATION 

What do employers do to give employees business 
and economic information? For the most part, 
individual employers tell their employees nothing 



WHAT CAN BE DONE 

What Allegheny Ludlum Steel Corporation did 
immediately following the 1946 general steel 
strike is an example of what should be done more 
generally. 

First, the company got the facts. A survey was 
conducted in May 1946 by Opinion Research 
Corporation to arrive at an appraisal of the steel 
industry by the people and by steel workers. 
This survey included 2617 personal interviews 
with a cross-section of the voting public and 988 
personal interviews with representative groups of 
union and nonunion steel workers in different sec- 
tions of the country. It showed the company 
what employees in the steel industry and the peo- 
ple were thinking. It brought to light many mis- 
conceptions. It indicated to the company what 
its labor and public-relations job was. Another 
survey by Opinion Research Corporation, entitled 
"How to Get Along in the Plant Community," 
pointed out the key factors in good community 
relations It also showed what practices led to the 

251 



ANNUAL REPORTS TO EMPLOYEES 



most successful employee and community rela- 
tions. 

Second, the company made its plans, using facts 
brought out in the surveys to guide it. It out- 
lined a program for a long-range educational cam- 
paign among employees and their neighbors. 
The goal of the campaign was to correct the mis- 
conceptions these groups had of the industry in 
general and of Allegheny Ludlum Steel Corpora- 
tion specifically. Because an extreme urgency ex- 
isted for getting the campaign underway quickly, 
a five-part program was immediately undertaken. 
This consisted of (1) community meetings, (2) 
publicity, (3) advertising, (4) letters and book- 
lets and (5) posters. The entire program was 
built around four principles that guide the oper- 
ating procedures of the company, namely: 

1. We have a genuine concern for the welfare 
of our employees and the communities in which 
they live. 

2. We pay good wages. 

3. We make fair profits. 

4. We want to prevent "BOOM AND 
BUST"!. 

All activities incorporated one or more of these 
four principles. 

In this book, we are limited to a discussion of 
one medium to correct misconceptions among em- 
ployees — the annual report to employees. The 
campaign of the Allegheny Ludlum Steel Corpo- 
ration will be used as part of the illustrative mate- 
rial. 



HOW THE ANNUAL 
REPORT IS HANDLED 

In current practice, the annual report to em- 
ployees is handled in the following ways: 

1 . A special version of the annual report to stock- 
holders is prepared for employees. 

2. One annual report is prepared and addressed 
to stockholders and employees and possibly 
others. 

3. A special edition of the employee magazine is 
devoted to the annual report. 

4. The report is published as part of a regular 
issue of the employee magazine. 

5. The annual report to stockholders is sent to 
employees with a covering letter. Certain 
features of the report may be reproduced to 
accompany the letter or special explanations 

252 



may be given. See examples on page 253. 
6. The results of the year's operations are pre- 
sented at a general, mass meeting of em- 
ployees. 

Actual distribution is made in one of the fol- 
lowing ways: 

1. Mailed to the employee's home where it can 
be seen by family, friends and neighbors. 

2. Civen to the employee with his pay envelope. 

3. Distributed at the time clock. 

4. Distributed with the company magazine. 

5. Passed out by supervisors. 

6. Distributed at employee meetings. 

GIVING EMPLOYEES THE ANNUAL 
REPORT TO STOCKHOLDERS 

To some companies, it may seem adequate for the 
present merely to give their employees the annual 
report to stockholders. For that reason, a few 
examples are given of how the presentation may 
be made. 

Atlas Powder Company used a 33^" X 7" slip, 
with a one and one-half inch fold at the top to per- 
mit the slip to be tucked into the cover of the re- 
port. The slip read: 

To the Employes 
of Atlas Powder Company: 

We believe you will be interested in having this 
copy of the Company's Annual Report to the stock- 
holders — the owners of the Company. The report 
explains our business for 1946 and gives a brief de- 
scription of the products we make. It expresses the 
hope that we will continue to go ahead with more 
and better products and better service to our cus- 
tomers which make possible more and better jobs. 

Isaac Fogg, President 

The Pennsylvania Railroad Company sent to 
employees the following letter with the annual re- 
port to stockholders. 

To the Employees: 

The Annual Report of a railroad is addressed to 
the stockholders, who are the owners of the property. 
It is an account of stewardship by the directors and 
management. 

The Report is just as important to the employees, 
who gain their livelihood in the railroad's service. 
It is highly to their interest to know how the affairs 
of the Company are going and what the problems of 



ANNUAL REPORTS TO EMPLOYEES 



management are and how they are being met. These 
are matters upon which employment depends, and 
upon which the understanding and cooperation of 
the employees is vitally needed, not only in the effort 
to attract the business and revenues which sustain 
emplovment. but in other concerns which are the 
mutual problems of all of us. 

Actually, the stake of the employees in the welfare 
of the railroad is many times greater than that of the 
stockholders. On the average, stockholders of our 
railroad last year were paid §90.00 in dividends. 
(The average stockholding was 60 shares; the divi- 
dends paid were $1.50 per share.) The average wages 
paid per employe were over S3, 100.00. 

For these reasons, continuing: the custom inaueu- 
rated with the 1943 Report, a copy of the Report for 
1946 is sent to all employees. It is my most sincere 
belief that a careful reading of it will repay everyone 
of you and add to your interest and satisfaction in 
your work. 

(signed) M. W. Clement 



Westinghouse Air Brake Company prepared a 
four-page folder with the following letter on the 
first page. The inside of the folder contained the 
two-page spread reproduced at page 254, showing 
how owners, employees, customers and suppliers 
operate as a team to bring about successful results. 
The last page was a diagram showing how every 
dollar of income was divided during the year. 

To All Employees: 

The achievements listed in the accompanying 77th 
annual report to stockholders would have been im- 
possible without cooperation between the owners of 
this business, those of us who are employed here, the 
suppliers who furnished us needed materials, and, 
most important of all, our railroad customers. 

It is our hope for 1947, in recognition of this de- 
pendence upon one another, that each of us makes 
sure his own effort is sufficiently productive to assure 
the company continuing success in its field, which 
will accrue to the benefit of the individual employee. 

(signed) George A. Blackmore 

Chairman of the Board 

(signed) A. N. Williams 
President 

Thatcher Glass Manufacturing Company, Inc., 
sent its employees a four-page letter with the fol- 
lowing message. As indicated in the president's 
letter, the reprints from the annual report showed 
how the sales dollar was divided. 



To Our Employees: 

I am attaching herewith some reprints of pages 
which were taken from our Annual Report to our 
Stockholders. These charts and figures should be of 
interest to each and every one of you. It shows you 
what has happened to every dollar your company 
takes in from its customers, and I feel that this is in- 
formation which you should have. It paints a pic- 
ture which will help you better understand "what 
makes our organization tick." 

You have just as large a stake in the future pros- 
perity of your company as I do. Probably a larger 
stake, because your entire livelihood is dependent 
upon its successful operation. That is why I want 
you to know where our money goes. 

There may be some of you who would like to have 
complete copies of our Annual Report to our Stock- 
holders. If so, do not hesitate to ask your plant man- 
ager for them. They are yours for the asking. 

It is my belief that the more accurate information 
our people have about their company, the better it 
will be for all of us who represent Thatcher. 
Sincerely yours, 
(signed) Franklin B. Pollock, 
President 

To make it easy for employees to ask for and 
obtain a copy of the full annual report to stock- 
holders — employees had received an eight-page re- 
port addressed to them — The Studebaker Corpo- 
ration used the postcard shown on page 255. 
The reverse side was a business reply card. The 
employee did not have to sign his name, it was 
stenciled on the card. 

SOME GUIDES FOR 
REPORTING TO EMPLOYEES 

Before showing the techniques that have been 
used in annual reports to employees, it would be 
well to deal briefly with three subjects that will 
affect any judgment of these techniques. They 
are: (1) The objectives of reporting to employees, 
(2) the employees' primary interests, (3) the 
criticisms of reports that have been made to em- 
ployees. 

OBJECTIVES OF 
REPORTING TO EMPLOYEES 

A company that reports to its employees on the 
financial operations of the business has some or all 
of the following objectives: 

1. To give employees facts about the company's 
progress that they can get in no other way. 

253 




~-r— 




v» ^* Si 




fit 




4> 



H£ 



»-l mm *«* 

S. * o 




254 



jy 



ANNUAL REPORTS TO EMPLOYEES 



Mr. Hoffman: 

I have read the supplement taken from 
the ig^6 Annual Report 
I would like to receive the complete 
1946 story of our company 
contained in the full Annual 
Report to Stockholders. 





My name is: 



Courtesy, The Studebaker Corporation 



Fig. 155 



2. To correct misconceptions and avoid misun- 
derstanding. 

3. To gain the loyalty and support of employees 
for the company and for private enterprise 
generally. 

4. To show the relationship among the stock- 
holders, management and employees and to 
point out some of the economic problems that 
they must face together in the future. 

5. To build employee morale by stressing the im- 
portance of their contribution to the com- 
pany's operations and the company's impor- 
tance to the national economy. 

6. To encourage employees to use the company's 
products (if it makes consumer goods) and 
recommend them to others. 

THE EMPLOYEES' 
PRIMARY INTERESTS 

The Controller of Armstrong Cork Company, 
Keith Powlison, made some interesting observa- 
tions on employee interests in an article on "Ex- 
plaining the Facts to Employees," Harvard Busi- 
ness Review, No. XXV, No. 2, 1947. For nearly 
ten years this company had presented a separate 
financial report, with charts and other illustrative 
material, designed especially for employees, at first 



as a separate publication and then as an item in 
the employees' magazine, the Reporter. A cross- 
section sample of workers in a number of the com- 
pany's factories were asked to state how often they 
read eacli of the eleven types of news items appear- 
ing regularly in this publication. The returns in- 
dicated that only one kind of news ranked lower 
in readership interest than the annual and semi- 
annual financial reports of the company. 

Mr. Powlison stated also that the requests of 
employees cannot be relied upon as an indication 
of what information employees want. In his 
opinion, they ask for one thing when they want 
something else. He suggests that companies 
should find out what is really wanted. 

Although it may be difficult to determine spe- 
cifically what the employee wants to know, it is 
fairly clear that he is primarily interested in his 
own security, opportunity and recognition* The 



4 Dr. Claude Robinson of Opinion Research Corporation re- 
ported to a special National Association of Manufacturers con- 
ference in 1947: "People want jobs and wages and good work- 
ing conditions and continuity of employment. But they also 
need to feel important, to glow with pride, to feel themselves 
members of the company iteam, to have purpose and signif- 
icance. A satisfactory job-package has two elements: the tan- 
gible — wages and working conditions and continuity; and the 
intangible — meaning — significance — pride. Both have a dollars 
and cents payoff." 

255 



ANNUAL REPORTS TO EMPLOYEES 



management of Thompson Products, Inc., bases 
its entire program of human relations on the be- 
lief that these are the primary interests of their 
employees. A poll of employee opinion con- 
ducted in Cleveland plants of the company bore 
out this belief. To quote from its booklet We 
Led With Our Chin, a report on a survey of em- 
ployee opinion, "The Thompson workman places 
greatest emphasis on security — on a feeling of rea- 
sonable certainty about the permanence of his 
present job. Secondly, he wants opportunity — a 
chance to move along and to better his lot in life. 
In addition to these, he wants recognition — a feel- 
ing that what he is doing is important, that it is 
appreciated by the other fellow, and that he has 
earned the right to be treated with dignity and 
respect." 

A two-page spread in the Rochester Gas & Elec- 
tric Company report to employees, reproduced in 
Fig. 156, offers a good illustration of copy that 



takes into account these three primary interests of 
employees. 

CRITICISMS OF CURRENT PRACTICES 
IN REPORTING TO EMPLOYEES 

Employees would have a better understanding of 
business facts and greater confidence in manage- 
ment's reports, if there were not something wrong 
with the way in which employers share informa- 
tion with them. Those who have given most 
thought to employee relations offer the following 
criticisms of current practices in reporting to em- 
ployees: 

1 . Employers have not made a sufficient effort 
to explain the facts of business to their employees. 
Certainly, they have not gone about finding out 
what to tell their employees and how to tell it in 
the way that they proceed with production, sales 
and other business problems. Many of them have 



20 



What of Yo 




R8 ; E 

PIONEERS 



££& 




HAVE WE A GUARANTEED ANNUAL WAGE? 

In effect wc do have a guaranteed annual wage. The proof 
ihal for many years no one has been laid off except for failure to 
properly carry on his or her work. 

DO EMPLOYES STAY WITH THE COMPANY? 

Yes, there is job security with the Company Look at this table 

of Employe service: . 

000 Employes have been with the Company over 10 years 
560 Employes have been with the Company over 20 years 
450 Employes have been with the Company over 25 years 
400 Employes have been with the Company over 30 years 

HAVE YOU A COMPLAINT? 

If so. please bring it to the attention of your foreman or super- 
visor or feel perfectly free to discuss it with any of your superiors 
or the Employe Relations Department. If not satisfied, any mem- 
ber of the Management will be glad to discuss it with you. 

DO YOU NEED ANY HELP? 

The Emplo>c Relations Department will be glad to help advise 
you on confidential or personal problems or on any other matters. 

WHAT ABOUT THE E.B.A.? 

The Employes Benevolent Association in 1946 paid out in 
benefits to Employes every penny contributed by both the Em- 
ployes and the Company Of a yearly net income totaling about 
5183,000, the following payments were made: 
Sick and Off-Duty Accident Benefits Paid To 

Employes 5141,000* 

Hospitalization and Medical Expenses Paid For 

The Employes 42,000 " 

Total Benefits Paid Out $183,000 



In other words, the Company contributed 5138,600 and the 
Employes paid S44.400 in dues and fees in order to enable the 
E B A to pay 5183.000 in benefits to our Employes 




fcV^M 




HOW ABOUT THE PENSION PLAN? 

The value of the Company's retirement plan is best understood 
by its costs and benefits. Of 55,700,000 paid in by both the 
Company and the Employes, about 54,000,000 was paid for 
by the Company alone since it began in 1031. Two hundred 
thirty retired Employes (about 10% of the present number of 
Employes) now benefit from the plan. Benefits paid to date 
already total 5000,000. 

DO YOU KNOW ABOUT THE SURGICAL PLAN? 

In addition to the health and welfare expenses for the Employes 
at an annual cost to the Company of 5554,000, the Company 
liberalized hospitalization benefits to include surgical service at 
no added cost to the Employes but at an additional cost annually 
of 513,000 to the Company. 

WHAT DO WE MEAN BY "SAFETY"? 

Accident prevention measures arc of constant concern and cost the 
Company over 550,000 a year, including the service of nurses, 
materials, supplies, educational programs and personnel time. 

3 WEEKS VACATION WITH PAY? 

Yes, vacations of 3 weeks with pay were recently extended to 
all Employes with 1 5 or more years of service. 

HAVE YOU SENT IN ANY SUGGESTIONS? 

It pays to do so. The suggestion system offers rewards for specific 
suggestions and also makes possible future opportunities. In 
1946, the Company paid $1,755 for 71 accepted suggestions. 
Half of the awards were for safety measures and the balance 
were mostly for improvements in operations. 

HAVE YOU BEEN TO MILE-WOODS CAMP? 

The building and grounds of the Mile-Woods Camp (off Scotts- 
villc Road) are owned by the Employes themselves and arc 
available for Employe social programs Did you know that the 
Company pays a portion of the cost of Employes' recreational 
activities such as bowling, softball and basketball leagues, as 
well as certain departmental social events? 



WH7 

rionofca, 
MIHBNHbIRiWKP 



WHAT OF THE F UT U R I . . . ? f»«m m» repo n y«„ 

tpabie and experienced Employes. With your continued loyalty and help we wii* 
THE FUTURE OF THI EMPLOYES 



sea we have many problems. However, we are fortunate in having a splendid organiz*. 
ftvsufc the progress and prosperity of both workers and Company In the years to come. 
AND THE COMPANY IS BRIGHT 




rtcsy. Rochester Gas and Electric Corporation 



Fig. 156 



256 



ANNUAL REPORTS TO EMPLOYEES 



issued special reports to employees or have pre- 
pared an annual report to stockholders and em- 
ployees, just because it has become the thing to 
do. They have never determined whether the 
report is read or what the employee really wants 
to know. 

2. A report once a year, even if thoughtfully 
prepared, is not sufficient by itself to create a 
correctly informed body of workers. Employee 
education in business facts must be a continuous 
process and an integral part of the company's oper- 
ations. The campaign of the Allegheny Ludlum 
Steel Corporation, mentioned at page 215, indi- 
cates some of the activities management might 
undertake to keep the educational process going. 
Interim reports to employees and articles in em- 
ployee magazines also help. 

3. In reports to employees, corporations have 
too often included financial statements that are 
unintelligible to their employees. In Chapter 
14. we have discussed what the average reader 
finds confusing in balance sheets and income state- 
ments and have shown how these statements can 
be simplified. More ideas are given later in this 
chapter for making figures mean something to the 
employee. 

4. Management has not been sincere in shar- 
ing information with employees. It has withheld 
certain information, for example, that it may cor- 
rectly feel would be harmful to divulge. But it 
has given no explanation of how it would hurt the 
company and employee interests to make the facts 
available. A candid explanation to employees 
might be sufficient to remove some of the existing 
skepticism of employers' statements — if employees 
believed that management was sincere. 

5. Reports to employees have too often given 
the impression that management and stockholders 
are making great sacrifices for the benefit of labor. 

6. Financial data have not always been pre- 
sented objectively. Some employee reports have 
been used for propaganda purposes. 

7. Management can do a more adequate job in 
reporting on conditions that touch the employees' 
closest interests — his security, opportunity and 
recognition. It has, for example, often antago- 
nized employees in its report on employee 
benefits, managerial compensation and plans for 
expansion. 

8. Management has preached free enterprise 
and extolled the system without taking into ac- 
count the employees' viewpoint. 



9. Frequently, in its attempts at simplified re- 
porting, management has gone too far and has 
produced a report that "talks down" to employees. 
Intelligent working people resent the implied 
slight to their mental powers and are likely to 
question the sincerity of the entire report. Scru- 
pulous observance of the employee's viewpoint 
will minimize this danger of a patronizing tone. 

In this chapter, suggestions are made for han- 
dling subjects of special interest to employees. 
Examples have been chosen that appear to be free 
of the criticisms enumerated above. They con- 
stitute the constructive ideas that are offered for 
improving annual reports to employees. 

MANAGEMENT SHOULD CONSIDER 
LABOR'S ATTITUDE 

Organized labor wants industry to give employees 
more information about business earnings. Wil- 
liam Green, in an editorial in the American Fed- 
erationist for June 1947, said: 

Workers as well as management should have the 
facts of their industry and their employing company, 
so that their policies can be guided accordingly. No 
management would conceal essential facts from in- 
vesting stockholders. Since workers make an equally 
important contribution to the company's earnings, 
they are entitled to know how the earnings are dis- 
tributed. When employers realize their moral re- 
sponsibility to give workers an accounting on what 
happens to the goods and services they help produce, 
labor relations will reach the level of honest, open 
negotiation. Under such a relationship our econ- 
omy would have a better chance to maintain high 
levels of production and earnings with a proportional 
purchasing power. 

In an earlier editorial, Mr. Green was more spe- 
cific. Said he: 

We believe management can, without revealing 
trade and production secrets, provide workers with 
records showing their various contributions to pro- 
duction, the amounts produced, returns from sales 
and amounts paid for materials, management and 
overhead, taxes, total wages, total salaries, dividends 
to stockholders, profits and the reserves necessary to 
maintain and advance the enterprise. Such records 
constitute a proper basis for collective bargaining. 

Should management try to satisfy organized 
labor with detailed information about the results 

257 



ANNUAL REPORTS TO EMPLOYEES 



of business operations? That is a question that 
each company must decide for itself. But if it is 
going to satisfy the union, it might just as well 
give the information directly to its employees, too. 
Management must also remember that labor- 
union analysts will study the report made to stock- 
holders as well as that made to employees. If the 
employee report does not satisfy the purposes of 
the union, union leaders may denounce it as prop- 
aganda. They may tell union members to ignore 
it. This does not imply that every frank and full 
report to employees will escape attack. But cer- 
tainly a factual, objective report is less open to 
criticism than one that is slanted to show manage- 
ment in the most favorable light. 

THE GENERAL PLAN OF 
THE REPORT TO EMPLOYEES 

An over-all plan for the report makes it easier to 
follow and, incidentally, easier to write. First, 
see the ideas given at page 17 lor planning a re- 
port to stockholders. Some of them are good for 
planning a separate report to employees. Below 
are ideas that were used in some of the best reports 
to employees. 

1. Limit the report to an explanation of where 
the money went that the company collected 
from its customers. 

2. In the first part, treat the subjects of general 
interest to employees — for example, reasons 
for the report, who owns the company, prof- 
its, competition, new products, new markets, 
problems and the like. In the second part, 
give the explanation of the company's cost of 
living. 

3. Divide the report into several parts — for ex- 
ample, what the men and women of the com- 
pany have accomplished; how the money came 
and went; financial statements; people, plants 
and products; highlights of the year; outlook 
for the future. 

4. Include articles by the president, covering the 
highlights, and by each of the directors or 
managers of the various divisions. The re- 
port on the distribution of the income dollar 
would be made by the comptroller or other 
financial officer. If the plan of having the 
report put together with sections written by 
each department is considered, management 
should ask itself: (1) Will the picture be 
more confusing than that created by an over- 

258 



all survey signed by one top man with whom 
the average employee may be expected to be 
familiar? (2) Does it assume a greater in- 
terest in the details of the business than the 
average employee has or should have? (3) 
Can the practical difficulty of keeping each 
department head within the space allotted 
him be met easily? 



LIVELY FACTS AND FIGURES 

A report to employees must, above all, be easy to 
read. This goes for stockholders' reports as well. 
But the techniques that might do for employees, 
because they are accustomed to getting business 
information in lively form from their unions, 
would not do for the stockholders. We are not 
advocating here that industry ape the unions, or 
that employers talk down to their employees in 
company literature, or that "kindergarten stuff" 
be passed out to workers. Reports to employees 
can be made lively and interesting and still escape 
all of these criticisms. Take, for example, Balti- 
more 8c Ohio Railroad Company's report to its 
employees entitled Know Your B & O. Although 
this booklet was not issued as an annual report, it 
is enough like one to be used here for illustrative 
purposes. In twenty pages of sprightly explana- 
tions and illustrations, Don Herold gives the 
company's message. It is an easy-to-read booklet 
with cartoons, as Fig. 157 indicates. This is not 
infantile in treatment, nor is it "talking down." 
The report was sent to the homes of the em- 
ployees. To test whether it had been read, the 
company conducted an abbreviated poll that in- 
cluded questions on the facts covered in the book- 
let. It found that the average employee ques- 
tioned in the poll got over three-fourths of the 
answers correct. 



SHOWING THE EMPLOYEE HOW 
MONEY TAKEN IN WAS DIVIDED 

Modern annual reports show how the money 
taken in during the year was divided. Ways in 
which this is done were illustrated in Chapter 7. 
This feature is especially popular in annual re- 
ports to employees. The three ways of telling 
the story — statistically, graphically and narra- 
tively — are further illustrated below from reports 
prepared especially for employees. 




How much does a railroad make? 



If companies and employes don't get 
mutual good from each other, good night! 

I believe they do. 

Some employes think their employers 
make too much profit on them. 

An impartial survey of railroaders by 
outside experts shows that this is how 
railroaders think about their company's 
profit. Here is how they "guesstimate" 
their employer's profits: 



36% 

9% 
9% 
6% 
10% 
8% 
8% 
5% 
•> /c 

A.C7 



didn't guess at all 
guessed over 75% profit 

50 to 75% profit 
35 to 49% profit 
25 to 34% profit 
16 to 24% profit 
11 to 15% profit 
10% o profit 
6 to 9% profit 
5% profit or less 



Only 4 percent were right! 

Perhaps you'd like to see what the 
stockholders of the B. & O. have had 
as "rent" on their dough over a number 
of years. Here's the record: 
DIVIDENDS 
Preferred Common 

Year Stock Stock 



1920 
1921 



4% 
4% 



None 
None 



DIVIDENDS (Continued) 

Preferred Common 

Year Stock Stock 

1922 A% None 

1923 4% 2H% 

1924 4% 5% 

1925 4% 5% 

1926 4% 6%, 

1927 4% 6% 

1928 4% 6% 

1929 4% 6V 2 % 

1930 4% 7% 

1931 4% 3^% 

1932 None None 

1933 None None 

1934 None None 

1935 None None 

1936 None None 

1937 None None 

1938 None None 

1939 None None 

1940 None None 

1941 None None 

1942 None None 

1943 None None 

1944 None None 

1945 None None 

1946 None None 
The B. & O. had a fairly good income 

in the five years prior to 1946, but its net 
earnings went into reduction of debt and 
improvement of property. There were no 
dividends in these years. 



Courtesy, The Baltimore & Ohio Railroad Company. 



Fi 3 . 157 



259 



ANNUAL REPORTS TO EMPLOYEES 



The simplified income statement at page 261 is 
from Joy Manufacturing Company's annual re- 
port to employees. It has one idea not found in 
the simplified income statements given at pages 
188 et seq. It shows how the employees' share of 
the company's income compares with the stock- 
holders'. 

Payroll costs, it will be seen, are excluded from 
the list of costs and expenses. Therefore, when 
the total of expenses (excluding wages and sal- 
aries) is subtracted from the total income, a figure 
remains that is the amount "left to be divided be- 
tween employees and shaieholders." Then fol- 
low the portions taken by employees in wages and 
salaries, by stockholders in dividends and by the 
business for a rainy day. 

A number of companies have used a similar 
form in their reports to employees. One criti- 
cism has been made of this form that may be 
worth mentioning: It implies that the company 
has voluntarily treated the employees much better 
than it has its stockholders. As a matter of fact, 
wages are largely out of the company's control; 
they are influenced by conditions in the particular 
industry, competition and other external factors. 
The form, however, has this virtue: It helps to 
correct any misconception as to the relative shares 
of company income that go to employees, stock- 
holders and back into the business. The shares 
are brought out even more clearly when the per- 
centage that each of the three "takers" gets of the 
total amount left to employees and stockholders 
is shown in parenthesis with each sum. 

Comparing wages with total "value added" by 
a company's operations will stress the employees' 
stake in the company's profitable operation. For 
an explanation of the "value added" concept, see 
page 72. 



ANOTHER GRAPHIC STORY 
OF DIVISION OF INCOME 

The annual report to employees for 1946 made by 
Thompson Products, Inc., was devoted exclusively 
to an analysis of all the money received by the 
company that year and how it was distributed. 
The report was a folded broadside, 814" X 10" 
when folded, 2434" x 1934" when open. One 
fold gave a statement of how the company income 
was divided. When opened, the broadside 
showed a cartoon presentation of the figures 

260 



given in the statement. A strip of this cartoon is 
reproduced in Fig. 159. The remainder of the 
folder included the president's letter and a state- 
ment called "Why this report?" The latter is 
also reproduced (see Fig. 160) because it attempts 
to answer employee skepticism about the depend- 
ability of the figures. 

EXPLAINING THE ITEMS IN 
THE DIVISION OF INCOME 

In addition to a simplified income statement and 
chart showing how the money received was spent, 
an explanation of each item may be helpful. 
These explanations offer an opportunity to correct 
misconceptions and to build confidence in man- 
agement. If the explanations are simple, clear, 
man-to-man talks, employees are bound to feel 
that management wants them to have the facts and 
understand them. 

In the Joy Manufacturing Company's report to 
employees, two facing pages were devoted to each 
item in the simplified income statement repro- 
duced at page 261. In each case, the left-hand 
page carried illustrations. At the top was the 
name of the item, the amount and a picture of 
the portion of the sales dollar that it represented. 
Below this illustrated caption was a cartoon of the 
item. The right-hand page carried the explana- 
tion. To show the technique, an entire page is 
reproduced at page 264. The repetition of the 
amounts in the right-hand margin of twelve pages 
did not become monotonous because of the circled 
amount, which, of course, was different on each 
page. 

EXPLAINING A SURPLUS 
TO EMPLOYEES 

Some employee reports have offered simple ex- 
planations of "surplus" or amounts ploughed back 
into the business. Here are a few examples. 

General Refractories Company explained why 
a surplus is kept in these terms: 

Every business must have "rainy day" money. To 
keep faith with the thousands for whom it provides 
jobs, your Company must prepare for unforeseen 
emergencies. It must have funds to help carry pay- 
roll in poor times. It must have cash to make im- 
provements that will keep General Refractories in a 
strong, competitive position, able to produce more 
and better products, thus creating more jobs. 

By retaining part of each year's profits for this pur- 



r 



SOURCE AND DISPOSITION OF JOY'S INCOME FOR 
THE YEAR ENDED SEPTEMBER 30, 1946 



TOTAL PAID US BY OUR CUSTOMERS 

FOR MACHINES, PARTS AND SERVICES $29,534,034 



TAXES $ 2,723,512 

MATERIALS AND SUPPLIES 14,119,862 

NEW TOOLS 657,756 



HIS MONEY WAS 
USED AS SHOWN 

HERE FOR THESE DEPRECIATION 219,938 

NECESSARY 



EXPENSES 




DEFECTIVE WORK 264,212 

TRAVELING AND ADVERTISING 802,587 

HOUSEKEEPING BILLS 956,068 



TOTAL OF THESE NECESSARY EXPENSES $19,743,935 



THIS AMOUNT WAS THEN LEFT FOR EMPLOYEES AND SHAREHOLDERS $ 9,790,099 



4 



WAGES AND SALARIES $ 7,584,147 

IT WAS 

DIVIDED IN THIS DIVIDENDS 587,499 

WAY 

KEPT FOR TOMORROW'S JOBS 1.618,453 



$ 9,790,099 
— — 






THE COMPANY'S PROFIT FOR THE YEAR WAS 82,205,952, THE SUM OF THE 



LAST TWO ITEMS ABOVE, THIS REPRESENTS 7.47% OF JOY'S TOTAL INCOME, 



Courtesy, Joy Manufacturing Company 

Fi 3 . 158 



261 



o 



S < 

I £ 

o 

Is 

m o 

t z 

o 

8- * 

- O* 

o i— 

3 

C (A 

I i. 

u 



5 
o 

X 




a 



262 



ikLi 




THIS REPORT? 



Many different forms of financial reports are issued annually by the company, 
to stockholders and others, and these are available to employees on request. 

However, experience shows that the form of report in which employees 
are most interested is the one which shows how all of the money taken in 
during the year was divided. 

Figures used are based on the regular financial reports submitted to stock- 
holders, and filed with the Securities & Exchange Commission. They cover the 
combined operations of Thompson Products, Inc. and subsidiaries in Greater 
Cleveland, Detroit, Toledo, Los Angeles and St. Catharines, Ont., Canada. 

How the Report Was Prepared 

The method used in preparing this report is similar to that used by the 
U. S. Department of Commerce in its study, "National Income in the United 
States, 1929-1935." 

First, we show the total amount of money from the sale of all products and 
services during 1946. To this is added federal income tax refunds and the 
amount of money withdrawn from savings of earlier years for postwar use. This 
gives us the grand total of income we had to work with during the year. 

Next, we subtract the necessary expenses of doing business, which include 
taxes, materials, depreciation, and other "housekeeping" items. There can be 
no money to divide until these bills are first provided for. 

The amount left is Income Available lor Distribution to employees, 
stockholders and the business itself. 

Note that 95.3% of all the money available for distribution in 1946 
was paid out to those who worked for the company, in the form of 
wages and salaries. 

The amount paid out in dividends, plus that left in the business, is the 
company's net profit for the year. 

You will find interesting and explanatory information on each of these items 
on the inside pages. 



Courtesy, Thompson Products, Inc. 



Fig. 160 



263 



: . . . : 



Depreciation is wear and tear that cannot be remedied by 
maintenance and repair work. Largely it comes about be- 
cause buildings and machines grow old, and out of date. 
You buy new tires, tubes, spark plugs, points and other parts 
for your automobile. You wash, grease and oil it and have 
repairs made when necessary. All such work and expenditures 
are what we mean by "maintenance". But in spite of such 
work and repairs, your motor car gradually becomes less 
and less reliable and finally wears out. That is depreciation. 

If you had planned to buy another car when the old one 
wore out, and every month had been putting away a few 
dollars for that purpose, you would be building up a "depre- 
ciation fund" which would provide you with enough saved 
up cash to buy your new car when the old one was worn out. 

So it is with Joy. We expect to stay in business, but we 
know that our plants and our machine tools and other 
facilities will eventually wear out and will have to be replaced 
with new ones. From experience, accountants know what 
length of time to allow for each kind of building or machine 
tool to wear out. Therefore, as prudent managers we must 
set aside each month, as part of our necessary expenses, an 
amount sufficient to replace plants and machines as and 
when they wear out. 

Last year Joy had to take out 3219,938 for this purpose, 
in other words for "depreciation", a very necessary expense, 
as you understand. If the managers of a company "cheat" 
on this expense, then some dark day it will not have the 
machine tools and other facilities it needs to carry on its 
business and keep its employees at work. 



$29,534,034 



3 2,723,512 
314,119,862 
3 657,756 




3 264,212 
3 802,587 
3 956,068 



3 7,584,147 
3 587,499 
3 1,618,453 
3 9,790,099 



$19,743,935 



$9,790,099 



Courtesy, Joy Manufacturing Company 



Fig. 161 



264 



ANNUAL REPORTS TO EMPLOYEES 



pose to be withdrawn when needed, the Company is 
able to save interest instead of paying it on borrowed 
money. The actual amount set aside is only a frac- 
tion of the total income, and has been lower than 
normal for several years. This surplus is insurance 
that helps guarantee the future of your job. 

Tampa Electric Company included the follow 7 - 
ing explanation of '"earned surplus" in a message 
that was sent to employees along with a copy of 
the report to stockholders. The message covered 
questions employees might ask about the annual 
report to stockholders. 

This is an amount totaling $3,91 1,863 that was left 
over from our revenues after paying our operating 
bills, taxes, interest, dividends and an allowance for 
depreciation. This represents an accumulation over 
a period of more than fifty years, and is the difference 
between the company net income and the dividends 
paid. It is not in cash but has remained in the busi- 
ness in the form of buildings, pole lines and other 
things the company owns. 

If you successfully ran your own business, say a 
grocery, you would not pay out all you made, but 
would increase your investment to some extent by 
purchasing new counters, a new truck, more things to 
sell, or something of this sort. The stockholders of 
the company have done just that. 



TELLING EMPLOYEES WHY 
PROFITS ARE NECESSARY 

In one of the Republic Steel Corporation's annual 
reports to employees, the president's letter dealt 
directly with a common misconception: That 
business makes huge profits at the expense of its 
employees. A few 7 paragraphs from this letter are 
given below to show the direct approach. The 
language is simple, the employees' viewpoint pres- 
ent. A basic principle of private enterprise is ex- 
pounded but not preached about. 

Republic Must Show a Profit 

A great many people have the idea today that busi- 
ness in general makes too much profit. As a matter 
of fact, some people believe there should be no profit. 

First, let me ask you: How much is "too much 
profit"? 

Let's take a look and see whether Republic has 
made "too much profit." 

In 1946 Republic had a profit of about $16,000,000. 
That means that on every dollar's worth of steel 



which you made and w 7 hich was sold to the customer, 
the company's profit was 3.9 cents. 

In other words, Republic made less than four pen- 
nies on each dollar of sale. To me that is not "too 
much profit." 

That $16,000,000 was divided two ways. Part of 
it, as I have already told you — about seven and one- 
third million dollars — went to the stockholders as 
dividends. The other part — eight and two-thirds 
million dollars — stayed in the company for re-invest- 
ment. 

Now let's say you're a stockholder in Republic. 
You go to a broker and buy four shares of Republic 
common stock. Those four shares cost you (on the 
day on which this was written) $122.25. On that in- 
vestment you would have received a dividend of $1.00 
a share in 1946. Each three months you would have 
received exactly $1.00 on your four share investment 
of $122.25. 

Does that sound as though the stockholder were 
getting rich? I don't think so. 

I'm just going into these facts because you have 
been told by so many people that business makes 
huge profits at the expense of its employees. 



What If Republic Made No Profits? 

What would happen to you, working for Republic, 
if Republic year after year failed to make profit? 
Let's look at it. 

The first thing that would happen, if Republic got 
the reputation of being a losing business, would be 
that nobody having money to invest would even dream 
of investing it in Republic. That would mean that 
we wouldn't be able to expand or to make major im- 
provements in our plants. 

Then we would find that other steel companies, 
who did make a profit, were expanding and making 
improvements, and making better steel. 

Pretty soon our customers would leave us and start 
buying from other steel companies where they got 
this better steel. The business each year would be- 
come less. That would mean, of course, that each 
year there would be fewer jobs and less money to di- 
vide between the employees and the stockholders. 

Only a Profitable Company Has Jobs 

It wouldn't be very long before Republic might 
have to go out of business and the sixty-odd thousand 
jobs which Republic now has would come to an end. 
You know it's only the company that makes money 
that stays in business and has jobs to offer. 

If I were working for a company that didn't make 
money, I'd go out and look for a job with a company 
that does make money. Profits are the best security 
you have for a steady job. 

265 



ANNUAL REPORTS TO EMPLOYEES 



Another explanation of the importance of earn- 
ings, taken from the annual report of General 
Mills, Inc., addressed to stockholders and em- 
ployees, is given below. 

The Importance of Earnings 

Surveys show that a majority of the public believes 
that so-called industrial "profits" average from 25^ to 
30^ on each dollar of sales. The same surveys reveal 
that most people consider \()f on the dollar a fair re- 
turn. General Mills' net earnings bt.sl year were 
approximately -'/2f' "" zo-ch dollar of sales. Over 
the past 10 years our net earnings have averaged un- 
der 3^S on the sales dollar. 

There is general misunderstanding, also, of what 
earnings really represent. As we have attempted to 
show in the "The Year in Brief" on page 3, earnings 
are actually one of the costs of doing business. They 
are the cost of using tools, including the "rent" we 
pay in dividends to stockholders for providing the 
tools (plants, cash, inventories, etc.), plus the neces- 
sary funds that must be reinvested each year in the 
company to provide new and better tools for future 
development and increased service. If there were no 
earnings over a period of years, growth and progress 
would cease; and stockholders would withdraw their 
support, since people cannot be expected to risk their 
savings, acquired in many cases through personal sac- 
rifice, without the likelihood of reasonable rewards. 

Thus earnings are the rewards for providing tools. 
As part of the cost of doing business, they must be 
recovered in the prices charged to customers. The 
provision for more and better tools, through consist- 
ent earnings, is the spark plug that insures an ever- 
expanding volume of goods and services. Without 
earnings, expansion and improvement are impossible; 
adecpiate service to customers suffers; and the pos- 
sibility of increased income to wage and salary earn- 
ers disappears. 

Earnings reflect effective operating teamwork. 
They are not only necessary to the survival of the 
individual company, but essential to the maintenance 
of our American system of free competitive enter- 
prise. For earnings are the life blood of industrial 
organizations, on the success of which our whole 
social order and common welfare depend. 



Profits Of Railways 

BASED ON A NATIONAL SURVEY 



WHAT EMPLOYES 
BELIEVE 

RAILWAYS MAKE 



27% 





I 



3h% 



%WHAT 
THE PUBLIC 
BELIEVES 



WHAT EMPLOYES 
AND THE PUBLIC 
SAY THE RAILWAYS 
SHOULD MAKE 



ACTUAL RETURN ON 



GREAT NORTHERN'S 
PROPERTY INVESTMENT 
IN 1946 

Courtesy, Great Northern Railway Company 

Fig. 162 



railways make and what the actual return on the 
company's property investment was in the year 
covered by the report. 

Here's how Fruehauf Trailer Company, in a re- 
port to employees called A Business Organization 
is Like An Individual — Like You, handles the 
same problem. 



ANOTHER DIRECT METHOD OF 
CORRECTING PROFIT MISCONCEPTIONS 

The annual report to employees can refer directly 
to the misinformation that employees harbor and 
attempt to correct the false impression. For ex- 
ample, The Great Northern Railway used the fol- 
lowing chart to show employees what they believe 

266 



Surveys show that the public — the average man or 
woman — believes that business concerns should make 
a lot more profit than they do. Dr. Henry C. Link, 
who conducts The Psychological Barometer, an or- 
ganization whose job it is to find out what people 
think on various questions, last summer asked 5,000 
men and women across the country the following 
epiestion: 



ANNUAL REPORTS TO EMPLOYEES 



"How many cents out of every dollar which large 
business companies take in do you think they should 
keep as fair profit?" 

17% said less than 10y 
22% said from 10f to 19^ 
20% said from 20? to 29^ 
15% said from SOf to 6(ty 
26% said they didn't know 

In other words, the average person thinks that a busi- 
ness concern should keep, as net profit, between 20y 
and 30^S out of every dollar it takes in. 



Our Xet Profits Far Less than You'd Think. It is 
safe to say that few enterprises, if any, make such a 
profit as this, due to the competition that exists. 
Few make over \5f on every dollar they take in. 
The average is probably below 10^. As for Fruehauf 
Trailer Company, we made a net profit of a fraction 
over lc on every dollar of sales in 1946. We think 
you'll be interested to see the figures on just what we 
took in last year and what we paid out — also what 
we did with the lc we made on every dollar of sales. 
Therefore, we present the following condensed state- 
ment of our business for 1946. It is known as a profit 
and loss statement and is really the same sort of 
record you might keep of your own income and 
expenses. . . . 

EXPLAINING PROFITS 
IN PAYROLL TERMS 

Another idea that is worth adapting in annual 
reports, is suggested by material used in the Al- 
legheny Ludlum Steel Corporation's campaign 
mentioned at page 251. In a pamphlet entitled 
Allegheny Ludlum Reports, the company includes 
the following statement of receipts, costs and prof- 
its. It is essentially a simplified income statement 
that interprets profits in payroll terms; in other 
words, it reduces large totals to a unit that is 
familiar to the employee — a weekly average per 
employee. With such an average figure the em- 
ployee can measure all items against a unit that he 
himself uses in calculating personal income and 
outgo. 

We Make Fair Profits 

Allegheny Ludlum has more shareholders than em- 
ployees. The company's responsibility is divided be- 
tween the two. We depend, for our tools and our 
ability to modernize, expand and create more jobs 
and easier work, upon our investors' capital. 



HERE IS THE STORY IN: 



WORDS . . 


. . AND 


FIGURES 






« 


First Nine Months, 1946 






Av. 








Amount 


ALLEGHENY LUDLUM 


AND 




For 


SUBSIDIARIES 




Total 


Employee 






Amounts* 


Week 
Worked 



All money received for 
RECEIPTS products manufactured $67,188,038 $149.00 
and sold and services ren- 
dered. 



Cost of raw materials, sup- 
plies, power, wear and 
tear on equipment and 
other costs (excepting 
wages and salaries) to 
make and sell our prod- 
ucts. 



$32,523,831 $72.13 



COSTS 



Federal, State and Local 
taxes, income taxes and 
corporation share of social 
security. 



$4,013,325 $8.90 



Paid to employees. 



$25,608,176 $56.79 



Paid to elected officers. 



$483,567 $1.07 



Earned for our 13,000 
stockholders whose build- 
ings, machinery and money 
we are using. 



$4,559,139 $10.11 



This part of the profit was 
paid as DIVIDENDS to the 
owners. 



$1,545,863 $3.43 



PROFIT 



This part, the remainder, 
of the profit was LEFT IN 
THE COMPANY so we 
can grow and prosper, 
buy new equipment, pro- 
vide more jobs and carry 
on in hard times. 



$3,013,276 $6.68 



* Subject to audit by public accountants at end of year. 

Another example of this idea is reproduced be- 
low from the report to employees of Rochester 
Gas and Electric Corporation. The report was 
prepared especially to clear up certain misconcep- 
tions that were revealed in an employee survey. 
In previous years, the company had sent its em- 
ployees only the usual financial report. This 
time, each employee received not only the em- 
ployee report but also the report that was sent to 
stockholders. 

267 



ANNUAL REPORTS TO EMPLOYEES 



Here Is the Company's "Cost of Living" on a 
Weekly Basis per Employe 

The operations of the Company may be more easily 
understood if they are presented on the basis of an 
average week for the year 1946, with the weekly in- 
come and expense per Employe also shown. This 
will give a clear and easily understandable picture of 
the "Cost of Living" for the Company. 

If we take the amount of money invested in the 
Company and divide it by the number of Employes 
we find that each man and woman on the Company 
payroll represents an investment of $40,000. In 
other words, each Employe is a $40,000 "business" for 
which somebody had to put up the money. 

Here are the detailed figures showing how much 
the Company took in per Employe each week last 
year and what it went for: 



What We Took In 

(Per Employe each week) 
Sales of Electricity, Gas, Steam, 
Appliances and Other Income 

What We Paid Out 

(Per Employe each week) 
Paid to Employes in Wages, 
Vacations, Pensions, Life 
Insurance, Company EBA 
Dues, Hospitalization, Sick- 
ness, etc. 

Salaries for Officers and Superin- 
tendents 

Fuel (Less By-Products Sold) 

Purchased Power and Gas 

Other Materials, Supplies and 
General Expenses (Less Pay- 
roll and Taxes Charged to 
Plant Construction) 

Taxes (Federal, State, City, 
County & Town) 

Funds to Replace Worn Out 
Equipment 8c Other Losses 

Paid for Use of Bondholders' 
Money 

Paid for Use of Preferred 

and Common Stockholders' 
Money 

Total Paid Out 
Net Receipts Reinvested in 
Business 



$196.30 



$ 58.31 

2.04 

30.15 

5.32 



15.73 



33.79 



20.19 



11.14 



17.02 
$193.69 



2.61 $196.30 



OTHER WAYS OF MAKING FIGURES 
UNDERSTANDABLE TO EMPLOYEES 

Several techniques have been developed for re- 
ducing the large totals ordinarily reported in 

268 



financial statements to a size that an employee can 
grasp. One that was introduced several years ago 
is to take the total assets and divide it by a figure 
that reduces the company to total assets of $10,000. 
All figures in the statements are then divided by 
this same divisor. In this way, a "little company" 
statement can be presented along with the actual 

figures. A separate column labeled "Little 

Company" carries the diminished figures. The 
same idea can be worked out by dividing each 
figure by 10,000 or some other round number. 

The U. S. Steel Corporation used a similar idea 
in explaining the elements of operating costs in 
terms of a small business. See page 76. 

Swift & Co. used the "small company" idea in a 
report to employees, by reducing the company to 
a one-employee-one-stockholder size. The story 
is reproduced below. 

66,000 Employes — 63,000 Shareholders 

Every one of the 66,000 jobs provided by Swift & 
Company requires a lot of capital. Most of the 
money used in the company's business is furnished 
by the 63,000 people who own Swift & Company 
shares. 

Who are the shareholders? 

The ownership of Swift & Company is widespread. 
Shareholders include persons in practically every kind 
of position or occupation. Nearly 6,000 employes 
are shareholders. It requires votes of more than the 
4,000 largest shareholders for a majority at a share- 
holders' meeting. 

How jobs are made 

In order to examine the place of the shareholders 
in relation to employes, suppose we are setting up a 
small business just like Swift & Company, except that 
it has only one shareholder and one employe. 

The figures used below are for the average share- 
holder and the average employe in Swift & Company 
in 1946, assuming there are 66,000 of each. What 
does the shareholder do in order to create a job for 
the employe? 

In the first step his money is used to acquire land 
and suitable buildings, equipped with utility services 
and machinery. Each employe has the benefit of 
using an average of $1,513 worth of buildings and 
equipment. 

Raw materials bought for cash 

Raw materials must be on hand. Livestock and 
other farm products and supplies are bought for cash. 



ANNUAL REPORTS TO EMPLOYEES 



It so happens this year the value of these inventories 
per employe also is §1,513, and they are purchased 
with money shareholders invest. 

Alter the products are sold and delivered, the com- 
pany must wait before it collects from customers. 
The shareholder's investment in products delivered 
but not yet paid for is S788 per employe. 

In addition, the business must have cash to meet 
pay rolls, provide for emergencies, and to be ready to 
buv large amounts of livestock and other farm prod- 
ucts in peak seasons. 

Some of this capital may be met by borrowing in- 
stead of direct investment by the shareholder. After 
allowing for borrowings, the average shareholder in- 
vestment in Swift & Company, including reserves, is 
S4.426. This is the amount of money the share- 
holder has put into the business to provide one 5 job. 

After the year's work is over, and employes are 
paid, $248 remains for the shareholder. This is 
equal to 5.6 per cent on his investment of $4,426. 

Dividends of $170 are paid to the shareholder, and 
$78 is left in the business to take care of expansion, 
more expensive equipment, more costly inventories, 
or to provide for losses in bad years. The share- 
holder's earnings are equal to only 1.3 cents on the 
average dollar of sales. 

It is apparent Swift & Company is NOT 66,000 very 
small businesses, but one business. The pooling of 
many small sums of capital, and the greater produc- 
tion that comes from each employe specializing in 
his particular job create a greater income than each 
could earn working alone. 



EXPLAINING THE PLACE OF 
STOCKHOLDERS TO EMPLOYEES 

The employees should know something about 
who owns the company and what their investment 
means to the workers. Some examples of such 
explanations are given below. 

The first example is from an issue of Arm-co- 
operator, employee magazine of the American 
Rolling Mill Company, in which annual-report 
material was included. The cover of the maga- 
zine reproduced a photograph of an elderly, mid- 
dle-class, motherly woman — a stockholder. On 
the inside cover her name and address and a brief 
sketch of her life were given. In the center of 
the same page was the following article: 

Meet Your Stockholder! 
By charles r. hook, President 

In 1900, there were 35 men — venturesome souls — 
who invested their savings in a new company, a steel 



mill called Armco. They were our first owners, our 
first stockholders. During the past 45 years our com- 
pany grew; the number of employees increased, and 
so did the number of men and women who backed 
their faith in Armco with their money. At the be- 
ginning of 1946, we had almost 50,000 stockholders 
■ — 1400 times the original 35 who risked their savings 
to start our company. 

You probably know some of these 50,000 stockhold- 
ers, these unseen owners of Armco. Among their 
numbers are the doctors who look after our families' 
health; dairymen who supply us with milk; teach- 
ers who instruct our children. Some are employees 
of Armco, and other companies. Some are widows 
whose only income is from wise investment of insur- 
ance funds. That little grocery store on the corner, 
the fruit market further down the street — the owners 
of such businesses helped finance our jobs. Their 
sayings were accumulated by hard work and thrift; 
they entrusted them to us. 

Let's take a closer look; how many shares do these 
frugal folks own? More than half of our 38,500 hold- 
ers of common stock own less than 50 shares each; 
75% have less than 100 shares. Those who own pre- 
ferred stock are not few in number; there are 11,450 
of them. Together, common and preferred stock- 
holders own 3,691,245 shares of the common and pre- 
ferred stock of The American Rolling Mill Company. 
It is their savings, their money which helps provide 
our plants, our tools, our jobs. They mean that 
much to us. 

Why do they risk their savings in our company? 
For the same reason that an employee invests his time, 
his skill, his effort, in his job — to earn an income. 
Employees receive their income in the form of wages 
and salary. The stockholder, for financing our jobs, 
is entitled to a fair income on the money he has en- 
trusted to us. We can pay him nothing unless there 
are profits, and there are no profits until after wages, 
salaries, materials, taxes, insurance, wear and tear, 
and many other items have been taken care of. We 
can never pay out to the stockholder all our profits 
because to keep our company sound and protect our 
jobs, we must use part of the money for buildings 
and equipment to keep our quality up, our costs 
down, and serve our customers so they will buy our 
product. 

From our 1945 profits, our common stockholders 
received 80 cents per share; this totaled $2,295,003 
and averaged $72 for each stockholder. The owners 
of preferred stock received $4.50 per share; a total 
of $2,024,736 which averaged about $177 for each. 
These were the average yearly incomes of our com- 
pany's owners from their Armco investment. 

Why should an Armco man or woman be interested 
in whether or not our stockholders received a fair re- 

269 



ANNUAL REPORTS TO EMPLOYEES 



turn on their investment? Hie answer is clear. II 
there were not stockholders, you and I would not 
have a job at Armco. The stockholders own Armco. 
We work for them. 



Here is another idea that hts into an explana- 
tion of who owns a company. It is excerpted 
from Sunray News, employee magazine of the Sun- 
ray Oil Corporation. This issue of the magazine 
also gave four pages of pictures and sketches of 
Sunray stockholders who lived in the vicinity of 
Fort Worth. 

. . . Surveys also show that the general public has 
a false impression regarding the amount of money the 
average stockholder receives on his investment, as 
compared with what the average worker receives. 
The truth is that workers now get about 71% of the 
total national income while stockholders get less than 
3%. In 1929 stockholders received about 7% of the 
national income. In 1945 the average stockholder in 
50 of America's leading corporations received only 
$191 in dividends. 

In 1945 the average Sunray common stockholder 
received less than S85 in dividend and the aver- 
age owner of Sunray preferred stock received about 
$108. . . . 



The following" information from the employee 
report of the Rochester Gas & Electric Corpora- 
tion aims especially at correcting a misconception 
among employees as to who owns the company. 
It has ideas in it that are readily adaptable where 
capitalization comprises more than one class of 
stock and bonds are outstanding. 

How the Board Is Elected and 
Who Owns the Company 

Our Board of Directors is elected by the common 
stockholders of our Company at the Annual Meeting 
held in June. The Board of Directors is the steer- 
ing committee of the Company and is responsible to 
the stockholders for the operation of the Company. 

Who owns the Company? In the growth of our 
business to its present-day standing, somebody had 
to furnish the large sums of money to buy the plants 
and equipment and thereby created the jobs we now 
have. In our case this meant that someone had to 
put up over $40,000 per Employe. How was and is 
this money normally raised? 

About half the money to build the Company was 
put up by the bondholders, who are similar to the 
person who supplies first mortgage money to help 

270 



build or buy your home. We have many bondhold- 
ers who live not oidy in and around Rochester but 
also throughout the country. Many of our bonds are 
held by life insurance companies. 

The preferred stockholders, who put up about one 
quarter of the investment, can be compared with the 
person who also has helped you buy or build your 
home and holds a second mortgage for his investment. 
We have thousands of preferred stockholders who re- 
side in almost every state in the country. 

The common stockholders, who furnished the re- 
maining epiarter of the money invested, are similar to 
the owner of a home who has made a down payment 
or other equity in the property. The common stock- 
holders, therefore, are the "owners of the Company" 
in (he same way that you may be the owner of your 
home, even though someone else may have a mort- 
gage on it. 

Who owns our common stock? The common stock 
of the Company is entirely owned by the General 
Public Utilities Corporation which took over the op- 
eration after the old defunct Associated System was 
reorganized by the Trustees of the Federal Courts. 
The General Public Utilities Corporation should not 
be confused with the former Associated Gas and Elec- 
tric Company and Associated Gas and Electric Cor- 
poration, which no longer exist. The new parent 
Company is staffed by new men and its Board of Di- 
rectors is composed of outstanding business and pro- 
fessional men of national reputation who are entirely 
different from and independent of the former officers 
and management of the old company. 

The General Public Utilities Corporation, which 
owns our common stock, is in turn owned by over fifty 
thousand stockholders throughout the United States, 
many of whom live here in Rochester and include a 
large number of our own Employes. Thus some of 
the money paid to our common stockholders eventu- 
ally comes home to our own Employes and to the 
people in the community who have invested their 
money in that Company. These people then are the 
real owners of our Company. 



A boost for the capitalist system is given in the 
following paragraph, which is part of the stock- 
holder picture in Joy Manufacturing Company's 
report to employees. 



Are Joy Shareholders Capitalists? 
Yes, and So Are You! 

Shareholders get the money to buy Joy stock by 
saving something out of what they earn. Instead of 
buying a costlier automobile, a bigger radio, a larger 
house, fancier clothes, richer food and drink, they 



ANNUAL REPORTS TO EMPLOYEES 



do with less and use the money thus saved to buy our 
stock. 

Such savings are called "capital" and the owner of 
the capital stock of a company like Joy is "a capital- 
ist." In a broader and truer sense we are all capital- 
ists. Your house, your ground, your furniture, your 
automobile and the rest of your possessions are your 
capital. You, as the owner, are therefore a "capi- 
talist." 

This is a "capitalist" country, because we thus own 
our possessions. We have a "capitalist" industry in 
the United States because millions of our people, all 
of whom are "capitalists," use a part of their "capital" 
to own and operate the most productive farms, stores, 
mines, and factories on this earth. And that is the 
reason why we. as a people, have the highest stand- 
ard of living of anv nation in the world. No other 
system in anv country, at any time, by any other 
means has ever produced so much for so many at 
such little cost as our "capitalistic" business does in 
America. 



HANDLING EMPLOYEE 
BENEFITS AND ACTIVITIES 

In reporting to employees on benefit plans main- 
tained for their security and other employee-wel- 
fare activities, these recommendations may help: 



Company Payments and Contributions 
in Addition to Your Hourly Pay 




WHAT YOU 0»T 
BESIDES YOUR 
MOUSIY P ATE 




MtOIMlCAHE 



Each year the Company pays a lot of "extras" for the benefit or its 
Employes over and above the hourly rales of pay. These contribu- 
tions by the Company averaged S516 per Employe last year, 
which works out to a rate averaging 254 per hour per Employe. 



Items Paid by Company 



Vacations, Holidays & Excused Time 
Social Security Taxes — Federal & State 
Pension Premiums 



Company 
Contribution 
Year 1946 

S 496,028 
183,914 

171,835 

128,335 
83,018 



Employe Benevolent Association 
Ordinary Life Insurance 

Extra Payments for Injury in addition to Workmen's 
Compensation and Pension Payments above Insurance 57,433 

Group Life Insurance 54,802 

Hospitalization & Medical Care 8,768 

Total Welfare Costs for 2,296 Employes SI. 184, 133 

The Average Welfare Cost Paid by the Company 

Per Employe Per Year $ 516 



On An Average This Means 

25< Per Hour 

Above The Employe's Hourly Rale 



1 . Present the facts without emphasizing the vir- 
tues of the company. Self-praise is always ir- 
ritating. A statistical presentation of facts is 
shown in Fig. 163. 

2. Evaluate what you are doing for employees 
realistically and report accordingly. Thus, if 
you are doing something new and worthwhile, 
bring the merits of the activity, not the com- 
pany's generosity, to the attention of the em- 
ployees. If you are doing what a number of 
companies are doing, note it modestly in the 
report. If the benefit is something that em- 
ployees throughout industry generally share 
in — for example, Workmen's Compensation 
and Federal Social Security — employees may 
look upon it as a right and not as a special 
benefit. 

3. Don't overestimate the employees' evaluation 
of future benefits. His first concern is with 
immediate satisfactions. Let him know what 
his opportunities are, if he has what it takes 
to get ahead. 

4. Let your report build self-esteem among your 
employees. Recognition of accomplishment 



Courtesy, Rochester Gas and Electric Corporation 

Fi 3 . 163 



may mean more to employees than disability, 
life insurance and retirement benefits. 



REPORTING ON OPPORTUNITY 
AND RECOGNITION 

If the company's policy is to recognize and reward 
proficiency and loyalty, a report on how the policy 
is carried out will interest every employee. In a 
McKesson & Robbins annual report to employees, 
two full pages were devoted to employee oppor- 
tunity and recognition. One page explained the 
system for evaluating jobs and rating employees. 
The facing page showed how many promotions 
were made during the year. The copy read as 
follows; the illustration in Fig. 164 showed de- 
tails of the promotions. 

271 



ANNUAL REPORTS TO EMPLOYEES 



Many Promotions Made During Year 

Advancements to Better Paying Positions — 
Training Programs Expanded 

During the past year there have been 305 promo- 
tions to executive, sales and supervisory positions 
throughout the Company. In addition several hun- 
dred more promotions have been made to better pay- 
ing positions in the office and warehouse. These 
promotions are the recognition and reward for those 
who have given proficient and loyal service to the 
Company. They represent fulfillment of the Com- 
pany policy to make promotions based on merit from 
within the organization whenever practicable. 

The Company expanded its training programs dur- 
ing the year for various executive, sales and clerical 
positions. The materials used in these programs are 
shown in the illustration at the right. Additional 
training courses are being planned. 

All employees are encouraged to read books and 
articles about our business in order to prepare them- 
selves for promotion. Many schools and colleges in 
cities where McKesson Divisions are located offer ex- 
tension courses in accounting, foremanship, retail- 
ing, etc. 



In the annual-report issue of Beldenews, em- 
ployee magazine of Belden Manufacturing Com- 
pany, two pages with a streamer head, "Important 
Assets Not Listed in the Balance Sheet of your 
Company," followed the simplified balance sheet. 
Employee recognition was their keynote. 

On the even-numbered page was the story of 
"Sustained Productivity." It began with this 
statement: 

The whole theory of an ever higher standard of 
living is based on rising production. It should be 
universally recognized that the inherent skills of the 
trained worker do not change appreciably. His at- 
titude, however, is a determining factor in his per- 
formance and in the quality of his work. The in- 
crease in production year by year and decade by 
decade results from improved technology, from re- 
search, and from higher investment per worker in 
better tools. 

It ended with this statement: 

. . . with the same number of machines, and al- 
most the identical number of operators, the gross 



SALES • 



Division Chief Executives 
Division Drug Sales Managers 

Asst. Drug Sales Managers 

Merchandisers 






Toiletries Representatives 
Chemical Department Managers 
Head Buyers 
Sundries Managers and Buyers 

Buyers 

Assistant Buyers 



10 
15 
15 



55 
4 
3 
2 

14 






District Drug Sales Managers 4 

District Liquor Sales Managers 5 



Division Liquor Sales Managers 
Asst. Liquor Sales Managers 

Liquor Salesmen 

Division Operations Managers 

Warehouse Superintendents 
Warehouse Foremen and 
. Shipping Clerks 

Drug or Liquor Office Managers 
Head Pricers, Head Order 

Control and Adjustment Clerks 
Telephone Sales Supervisors 
Credit Managers 
Assistant Credit Managers 
Accountants 

Assistant Accountants 



District Operations Managers 
Home Office 



• •••»#• 


16 


•#•#•«•»• 


9 


••#•••#### 




•#••# 


15 


••••••!►' 


7 


•••••••*•• 




«*«••••#•• 




•»#•• ' 


25 


•••#••# 


7 


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; &••#• 


15 


•#•##, '-'' 


5 


<*■■:■: ■\!.-r,..;.v* 


7 


••»#••'# 


7 


• • ' 




#• 


12 


g I <$ 


3 


mmm 


3 


••••••»«••• 


11 



Courtesy, McKesson &■ Robbins Incorporated 



Fig. 164 



272 



ANNUAL REPORTS TO EMPLOYEES 



weight of shipments from the Chicago plant actually 
increased 5.15% in 1946 over 1941. We can all be 
proud of the record of the past six years. 

On the odd-numbered page was the story of 
"Team Spirit." This started with the following 
statement: 

The fundamental of effective operation is the 
group spirit so well demonstrated by really great 
athletic teams. The solo performers, regardless of 
their individual abilities, cannot equal the plus 
values inherent in a truly balanced organization. Be- 
low are a few incidents in Belden operations which 
exemplify the spirit that animates the organization 
when confronted with situations involving either 
operating or purely human relations problems. 

Four short stories were given, of which the fol- 
lowing was one. 

Meeting Copper Emergency. A serious copper 
shortage early in 1946 threatened sharply reduced 
production, employment, and profits. Rising to 
the emergency, the Purchasing Department operated 
round-the-clock. Salesmen became hunters and buy- 
ers of copper. Finished goods were exchanged for 
copper rod. Metal was obtained from diverse and 
remote places. It was in odd sizes, shapes, and pack- 
ages. Engineers, machine operators, and others co- 
operated to overcome the obstacles of using the 
emergency material with a minimum of lost produc- 
tion.' Result— 6,000,000 lb.— nearly 30% of our 1946 
output — obtained and fabricated to the benefit of cus- 
tomer, employee, and shareholder alike. 



ACCIDENT INFORMATION 

Workers should be given all the facts of accident 
frequency, accident-prevention activities and the 
care of employees injured on the job. Surveys 
show that misconceptions exist among employees 
as to how dangerous their work is. Only the facts 
will help clear up the mistaken impressions. 



EXPLAINING 

MANAGERIAL COMPENSATION 

Few companies give their employees information 
on compensation of executives. Yet every com- 
pany that files reports with the Securities and Ex- 
change Commission knows that information on 
compensation of their highest paid executives is 



available to the public. They also know that the 
unions get the figures and give publicity to them, 
that their unionized employees are therefore not 
in the dark as to executive salaries. 

Management's job is to give the information 
and convince employees that the payments are 
fair. An illustration that shows management's 
compensation to be only a tiny portion of the 
great sales-dollar pie and labor's share a huge por- 
tion, is not likely to convince a manual worker 
who earns $60 a week that management is not 
overpaid. Nor does it help sufficiently to mini- 
mize the disparity between executives' salaries and 
wages by showing what is left to the high-salaried 
employees after income taxes are taken out. Cer- 
tainly, management does not help the situation by 
suggesting that if the total of officers' compensa- 
tion were divided among all the other employees, 
each worker's share would be inconsequential. 
The employee still thinks of what the executive is 
getting! 

The way to justify executive compensation is to 
point out the great contributions of top manage- 
ment to the success of the business. Why not 
give information on how management has solved 
problems in perfecting the company's products, 
obtaining; materials, reaching; markets, meeting; 
competition, creating new products, training per- 
sonnel and the like? It can be done without ap- 
pearing boastful. The excerpt from the Kaiser- 
Frazer report at page 49, for example, gives a 
concrete idea of what executive brainpower and 
ability really mean. The information was not in- 
cluded in the report ostensibly for this purpose, 
but it tells the story nevertheless. 

PLANS FOR THE DEVELOPMENT 
OF THE BUSINESS 

In the report to employees on management's plans 
for expanding its business, employee reactions 
must be considered. They may see the plans as 
opportunities for advancement or as greater job 
security. On the other hand, if the company has 
refused demands for higher wages on grounds of 
inability to pay more and about the same time 
plans expansion, employees may look at the move 
as an extravagance and example of poor manage- 
ment. An employer who cares about employee 
morale cannot afford to overlook labor's criti- 
cisms, no matter how unjustified they may be. A 
candid explanation to counteract such opinion 
may be all that is necessary. 

273 



ANNUAL REPORTS TO EMPLOYEES 



"SELLING" FREE ENTERPRISE 
IN THE REPORT TO EMPLOYEES 

The annual report is a logical medium for justi- 
fying free enterprise. However, an academic 
statement extolling the system will not he ac- 
cepted by the workers — it may not even be read. 
Such generalizations have little bearing on the 
subject matter of the report — the operations of a 
particular company and their importance to its 
employees. Most workers believe in free enter- 
prise and resent being preached to about it. The 
vast majority of employees cherish the principle 
of freedom of the individual that is basic in the 
system, as much as their employers. All that em- 
ployees want is a greater share in the profits of 
business. 

Employees undoubtedly need a better under- 
standing of the fundamentals of private enterprise 
to see why their share of the company intake must 
have a sound relationship to other costs. An un- 
interrupted educational campaign may be the an- 
swer. The annual report can do only a small part 
of the educational job. It can include a delib- 
erate message on the subject, or it can link the 
various subjects reported upon to a basic free- 
enterprise principle. In either approach, the em- 
ployees' viewpoint must be kept foremost. They 
must see how they and their jobs fit into the over- 
all pattern. An example of a direct statement is 
given below. It is taken from an annual report 
issue of Mallory Life, employee magazine of P. R. 
Mallory & Co., Inc. Examples of indirect selling 
of free enterprise as various subjects are reported 
upon, are given throughout this book. To locate 
them, look in the index under "free enterprise." 



A Good Time to Take Stock 

Companies keep records and issue reports about the 
bare facts of business for three good and sound rea- 
sons. They want to know where they've been, where 
they are, and where they're going in terms of pro- 
duction, sales, profits and so on. 

These records and reports are made in terms of 
figures and dollars. But there are a lot of facts of life 
about companies and business, and about our whole 
economic system, (hat can't be recorded or talked 
about in figures and dollars alone. 

We've already set forth the figures and dollars that 
tell that part of the Mallory Company story as it 
stacked up at- the end of 1946. Now is a good time 
to take stock of some of these other things. 
274 



For instance, it is certainly worth noting that at 
the end of our first postwar year the United States 
is just about the last place in the world where a com- 
pany like ours can exist. Ours is also the only re- 
maining nation in the world where the freedom and 
rights and dignity of each individual are still pre- 
served and protected. 

These two facts are related. History is full of ex- 
amples to show that people are only free to live as 
they please when they are free to work as they please 
under law. 

No other system of living and working together has 
ever been devised which better served its citizens. 
And no other system has ever rewarded its people as 
generously as ours with freedom, with money or with 
goods. Yet we have persons, even within this coun- 
try, who want us to trade our system in for some other 
one. 

Only one answer is necessary to meet such non- 
sense. That answer is to make our system of living 
and working together function even better. And we 
at Mallory can do just as much to provide that 
answer as the men and women who make up any 
other group in our society. We can do it by continu- 
ing to improve our way of doing things — by provid- 
ing more of the things we make; by producing still 
better things; and by producing them for lower costs 
— so that we can sell more of the things we produce 
and therefore have more returns to divide as a reward 
for our effort. 

Now let's take stock of another fact. Some people 
have the cock-eyed notion that "management" and 
"stockholders" have a different stake in this process 
than "labor" has. Let's look at our own facts and 
figures for 1946 for the answer. 

Mallory workers had a 52 cent stake in every dollar 
the Company took in. Management had a 1 69/100 
cent stake in each dollar. And the stockholders had 
a 2 33/100 cent stake. If we could have made and 
sold one more dollar's worth of goods the workers 
would have gotten 52 cents of it. If we could have 
produced and sold another million dollars worth of 
goods the employees would have gotten over a half 
million dollars of it — and probably more because we 
could have shaved a few pennies off other costs like 
overhead, operating expenses, etc. All of us would 
have gained. No one would have lost. 

It's a matter of simple, hard-headed arithmetic that 
management, stockholders and employees have a com- 
mon stake in this whole industrial process. On this 
score the Mallory management believes in the doc- 
trine of high wages, hand in hand with greater ef- 
ficiency and lower cost of production, as the one way 
to increase this common stake, and the fairest way to 
share it. To our way of thinking the road that leads 
to greater progress for the Mallory Company is the 
same road that leads to more and better income and 



— 



ANNUAL REPORTS TO EMPLOYEES 



security for all the people who have a stake in the 
Company. There is no such thing as one road for 
labor and another road for management. They must 
pave the one highway of production and travel it to- 
gether. 

When we come to the where-do-we-go-from-here 
part of our stock-taking, the challenge is obvious. 
We are now in a postwar competitive economy. The 
chips are down. We have plenty of problems yet to 
solve. They are all common problems to be tackled 
together. But we have very few if any problems that 
greater and more efficient and less costly production 
won't solve. And the limits of progress for ourselves, 
our Company, our economic system or our nation are 
nowhere yet in sight. 

(signed) J. E. Cain 
President 



GETTING EMPLOYEE SUGGESTIONS 
FOR THE ANNUAL REPORT 

Until more effective methods are used for finding 
out what the employee really wants to have in the 
way of an annual report, the company may have 
to depend upon what it discovers through a simple 
request for the information. 

One technique is that used by General Motors 
Corporation. It slipped the card illustrated in 
Fig. 165 into the report to employees. The 
smaller portion (What do you think of this Re- 
port? with What's Your Opinion? on the reverse 
side) appeared early in the report. The business 
reply card portion appeared toward the end of 
the report. 










What's YOUR Opinion? 

Your comments on last year's Report to Employes 
were used in preparing this Report. If you like it or if 
there are some changes you would like to see made. 
let's hear from you. Your opinion will help to guide 
us in making up next year's report lusl nil in the 
other halt ol this card, detach, and drop it in the mail. 




NO Signature or 
Stamp necessary 



■■■■ Use postcard inside back cover ■■ B 



I, 

5 i 

3 I 

a, < 

© Is 
5 1 

I 6 



D 



§ b 

g S5 

I I 



D D 



O I 



s 3 



£ S 
& "6 



s e a 

odd 



Jl 



O 

a d 



1 
1 i « 



d a ■ 

3 

H 

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1 |l 



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I 

i 



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n d 



Fi g . 165 



Courtesy, General Motors Corporation 



275 



ANNUAL REPORTS TO EMPLOYEES 



Champion Paper and Fibre Company included 
the following statement and card in a report to 
employees. 

After we presented the Fiftieth Anniversary Report 
to employees last year, we asked them to tell us how 
they liked it. Here are the results, compiled from 
the replies to the questionnaire. 

Ninety-four percent wanted a new report this year. 

Ninety percent said last year's report was easy to 
understand. 

Two-thirds discussed the report with families, rela- 
tives, friends. 

Nearly half talked it over with fellow employees. 

Most of the people who replied to the question had 
good suggestions for this year's report and we have 
tried to include as many of them as practicable. 

You'll do us a further favor — if you'll fill out the 
attached card and drop it into the nearest suggestion 
box. 



{Date) 

Did you like Annual Report to Champions, 1945? 

Yes No 
Did you find it: Easy to understand? Hard to 

understand? 
Do you want another report to employees next 

year? Yes No 
How many people besides yourself have looked 

over your copy so far? 

; L ' (Number) 

Your remarks and suggestions will be helpful and 
will be accepted in the same cooperative spirit 
in which they are given: 



(You do not need to sign your name, but you may ij you wish) 



The following questionnaire, in the form of a 
business-reply card, accompanied the report to em- 
ployees of the New York Central. 



It will be helpful if, after you have read the Re- 
port to the Men and Women of the New York 
Central, you will fill in and return this card — or, 
if you care to comment more fully, write me. 



Yes 


No 


Yes 


No 


Yes 


No 


Yes 


No 


Yes 


No 


Yes 


No 


Yes 


No 


Yes 


No 


Yes . 


No 



F. E. Williamson 



1. Is it clear? 

2. Does it add to your knowledge 
of the Company? 

3. Do you like the form of the Re- 
port? 

4. Would you like to have such a 
report each year? 

5. If so, would you like to know 
more about: 

Operations 

Taxes 

Employes 

Finances 

Equipment 



INVITING EMPLOYEES 
TO ASK QUESTIONS 

Many annual reports invite the employees to ask 
questions on the report. In such cases, the re- 
port should clearly indicate whom the employees 
should go to with their questions, and the com- 
pany should be sure that those to whom the em- 
ployees are referred are prepared to answer the 
questions. An illustration of how this may be 
done follows. In its first report to employees, 
The Studebaker Corporation said, "If you have 
any questions about it, ask your supervisor. He 
either has or can get the answers for you." A day 
before the report was released, the company held a 
series of three meetings, a luncheon meeting of 
night-shift supervisors, a dinner meeting for su- 
pervisors in South Bend and another of super- 
visory people in the Los Angeles assembly plant. 
The annual report to employees was distributed 
to the supervisors present and discussed. Super- 
visors left feeling prepared to answer questions 
that employees might ask. 



ONE REPORT OR 
SEPARATE REPORTS? 

The preceding discussion may help employers- 
weigh the arguments that are presented in favor 
of a single report addressed to stockholders and 
employees (and others) , against those offered in 
favor of separate reports. 

Before presenting the arguments in summary 
form, it is well to point out that many annual re- 
ports that have been addressed to stockholders and 
employees have been prepared principally as re- 



276 



ANNUAL REPORTS TO EMPLOYEES 



ports to stockholders. The employee has been 
added in the salutation, but the report itself has 
not been written with his interests in mind. On 
the other hand, many reports that have been ad- 
dressed exclusively to employees have been justly 
criticized as "kindergarten stuff" that is insulting 
to the employees' intelligence. As a result, the 
trend has been toward writing one report to serve 
for stockholders, employees and any other audi- 
ences. 

The arguments below are presented with the 
assumption that if one report is used, it will be 
prepared to satisfy the needs of both stockholders 
and employees, and that if separate reports are 
written, the best techniques will be used for each. 

Arguments in favor of a single report 

1. Employees and stockholders have the same 
interests in the company and one adequate report 
should suffice. 

2. A single report emphasizes the community 
of interest between stockholders and employees. 
A combined report, written for both employees 
and stockholders, can subtly serve a double pur- 
pose. A section of the report can, for example, 
stress the employees' contributions to the business. 
These paragraphs will not only help build worker 
morale but will also suggest to the stockholders 
how important a constructive labor policy is to the 
company's earning power. Another section can, 
similarly, let the employee know that his job 
would not exist without the capital invested by 
stockholders. 

3. A combined report recognizes the fact that 
many employees are also stockholders. To the 
employee who is not yet a stockholder, a well pre- 
pared report will suggest the desirability of shar- 
ing in the ownership of the company. 

4. Employees and stockholders have equal 
ability to read and understand annual reports. 
One group is no better educated than the other, 
as a whole. Therefore, no special techniques are 
necessary for telling the story to the employees. 
Furthermore, an intelligent employee is gratified 
when he receives a copy of the same report that 
stockholders get. He realizes that management 
considers him capable of understanding the in- 
formation issued to stockholders. 



5. A single report avoids any suspicion on the 
part of the employees that information has been 
deliberately withheld from them. Also, it pre- 
vents labor-union leaders from comparing the two 
reports, finding omissions in the employees' report 
and stirring up trouble over differences that are 
really inconsequential. 

6. A separate report may be discounted as 
propaganda. 

7. A single report saves both time and money. 

Arguments in favor of separate reports 

1. Management may not have the same objec- 
tives in reporting to stockholders that it has in re- 
porting to employees. 

2. Employees have been reached by labor 
unions through certain tested techniques. The 
annual report is one medium for counteracting 
union versions of business facts. If union tech- 
niques have proved effective, some of the same 
techniques ought to be used by the employer. 
Those techniques are not suitable for reporting to 
stockholders. 

3. Suspicion that the stockholder report con- 
tains information that is to be kept secret from the 
employee can be easily overcome. The annual 
report to stockholders may be made available to 
employees. Employee reports can be offered to 
stockholders. 

4. Some subjects are of greater interest to 
stockholders than to employees, and vice versa. 
For example, employee relations do not interest 
stockholders as much as they do the employees. 
On the other hand, product information interests 
the stockholders more than the employees. 

5. Stockholders and employees have different 
viewpoints even where both have interest. For 
example, labor looks at the net profit, dividends 
and reserves in one way, the stockholders in an- 
other. The explanation of such items must take 
into account the different viewpoints. This is 
done better through separate reports. 

The answer undoubtedly is that for some com- 
panies separate reports are necessary, while for 
others a single report will serve. The choice 
must take into consideration the conditions in the 
particular company. 



277 



WINNING PUBLIC GOODWILL 
THROUGH THE ANNUAL REPORT 



CHAPTER 20 



Every corporation that publishes an annual re- 
port to stockholders must recognize the potential 
power of the report to affect the company's rela- 
tions with the public, whether it is designed to 
do so or not. The man in the street may never 
see a copy of the report to stockholders, but he 
does read newspapers and magazines and listen to 
the radio, his minister and perhaps a campaigning 
politician. These media get much of their in- 
formation about business from corporation re- 
ports and then pass the material on to their read- 
ers and listeners. 

The report, furthermore, is a printed document 
on a subject of perpetual interest to the public — 
corporation profits. Once in the hands of the 
stockholders, it has already reached a part of the 
public. Willy-nilly, copies will get into the hands 
of nonstockholders. If the company deals with a 
union, or if unionization of its employees is in 
prospect, the report will undoubtedly be exam- 
ined by labor leaders, who influence a sizable 
segment of the public. 

Because an annual icport is by its nature a pub- 
lic-relations instrument and is read by the leaders 
of public opinion, it offers an excellent oppor- 
tunity for a corporation to carry its message to a 
wider audience than its stockholders and em- 
ployees. The men who prepare the report can 
address this secondary audience more effectively if 
they first understand its attitudes toward all busi- 
ness in general and their business in particular. 
For this reason, it is worthwhile to study the re- 
sults of mass-opinion surveys. Some of these have 
been referred to in Chapter 2. 

A company that ignores the public-relations 
value of the report is overlooking an opportunity 
to build goodwill. It may, indeed, inadvertently 
be creating misunderstanding for itself and for 
business generally if it does not present its story 
with public attitudes in mind. In this chapter, 
ideas are offered for winning public goodwill. 
278 



THE PUBLIC'S INTEREST 
IN ANNUAL REPORTS 

The annual report should be conceived of as 
serving two functions in public relations: (1) To 
tell the public how business — and this particular 
business — works in our economy, (2) to reflect 
the company's general and specific concern for the 
public. 



SETTING THE PUBLIC 
RIGHT ABOUT BUSINESS 

Reference has been made in Chapter 2 to the false 
notions held by the public concerning business 
profits and to its lack of confidence in business re- 
ports on them. This ignorance and misunder- 
standing lead, of course, to an unhealthy attitude 
toward business, to an antagonism toward free en- 
terprise and a clamoring for government regula- 
tion of business in one way or another. Under 
these conditions, every annual report should have 
this as a primary purpose: To publicize the facts 
so clearly, completely and convincingly that they 
will dissipate false notions. 

Obviously, if a businessman feels that the pub- 
lic's attitude toward his business will be improved 
by an understandable presentation of the facts, he 
will use every means at his disposal to make the 
facts known. Just as obviously, if he does not feel 
that a clear statement of the facts will help, he 
should question his way of doing business. In 
other words, the public's attitude toward business 
in general is the result of its understanding of all 
the enterprises that make up the institution Ave 
call business. Each businessman must inquire 
whether he is contributing- to a favorable or un- 
favorable attitude. Each must see that when facts 
are given to the public, they are clearly stated. 
The impact of these facts should be favorable if 
the business is being conducted properly in a so- 



_. 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



ciety that recognizes the freedom, rights and dig- 
nity of each individual. 

Every report that is brought out should be re- 
garded as an opportunity for explaining how the 
free-enterprise system has been furthered by the 
operation of the business and how this furthering 
has helped the public welfare. This job of justi- 
fying free enterprise is one that cannot "be left to 
George," for, mind you, the enemies of free enter- 
prise are skilfull and disingenuous. 

Since public attitudes change from time to time, 
it is advisable to know, when writing the report, 
what the general public is then thinking about 
business. One way of getting the facts is to 
follow the published surveys of public reaction. 
Another is to participate in the sponsorship of 
public-opinion surveys. A third is to give atten- 
tion to what the trade papers of the industries you 
serve are saying about policies and practices in 
your field. 

MAKING A REPORT REFLECT 
CONCERN FOR THE PUBLIC 

To earn public goodwill, a report must be written 
with these audiences in mind: (1) The groups to 
whom the report will be sent (see page 282) , (2) 
the general public. The contents of the report 
may reflect the company's concern for the public 
in one or more of the following ways: 

1. The plan of the report. 

2. Its salutation. 

3. Inclusion of a statement of public-relations 
policy. 

4. Coverage of public-relations activities. 

5. Report of company-community cooperation. 

6. Educational material in the report. 

7. Business policies. 

Each of these methods is discussed and illustrated 
below, with checklists where appropriate. 

THE PLAN OF THE REPORT 

A company may select a public-relations theme in 
planning its report. Some examples are: 

1. The opportunities offered by the territory 
served. Many of the public utilities and railroads 
publicize the territory they serve. For example, 
the San Diego Gas & Electric Co. serves San Diego. 
Interspersed in the narrative of one of its reports 
are facts, figures, beautiful color plates and maps 
that show what San Diego offers and is planning 



to offer to its citizens. Several of the company's 
national advertisements that have been used to at- 
tract industry to San Diego are reproduced in the 
report. 

In a report of the Lehigh Coal & Navigation 
Company, the community is a secondary theme. 
Nothing is said directly about the community, but 
a number of photographs of community life, with 
descriptive captions, are included in the report. 
The cover itself is a bid for community goodwill; 
it is a photograph of the Easter parade at Lans- 
ford, one of the communities in the heart of the 
company's coal-producing properties. 

2. Every citizen is a customer. A company 
whose products touch various aspects of American 
life, the American Box Board Company, used this 
theme with the introductory caption: "Our Cus- 
tomers — the Public.'' The company regards its 
own activity, as packager, protector and carrier of 
the public's goods, as an essential public service. 
The report shows how intimately its operations 
are tied in with the American way of life. It 
describes in the narrative and by photographs 
how its products serve in bringing food to the 
public, in maintaining the American standard of 
living (packaging of household goods) , in keep- 
ing the nation well-clothed (boxes for wearing 
apparel), in education and business (packaging 
of educational products, shipping cases for of- 
fice equipment) , in play (containers for sporting 
goods), in improving health (packaging for medi- 
cal materials) and in transportation. 

3. The company helps build America. Sun- 
shine Biscuit Co. used this theme with a play on 
its name: "Sunshine helps build America." The 
first half of one of its annual reports was devoted 
to showing in few words but with fine illustra- 
tions, how this company, with its plants, products 
and employment, helps to build America. 



INCLUDING VARIOUS PUBLICS 
IN THE SALUTATION 

Most of the annual reports that reflect a concern 
for the public are, nevertheless, merely addressed 
to the stockholders. A few companies do make 
the salutation more inclusive. For example: 

Pullman Incorporated opened a report as fol- 
lows: "The Board of Directors of Pullman Incor- 
porated presents herewith its report for the year 
1946, for the information of Pullman Stockhold- 
ers, for users of Pullman Service and Products, 

279 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



and for all Americans interested in the accom- 
plishments of private enterprise." 

Jewel Tea Co., Inc., addresses its report "To 
Stockholders, Jewel People and the Public." 

General Foods Corporation sends its report "To 
the Members and Friends of the General Foods 
Family." 

The Haloid Company says, "To Haloid stock- 
holders, fellow workers, and customers." 

STATEMENT OF 
PUBLIC-RELATIONS POLICY 

The mere inclusion of a statement of public-rela- 
tions policy shows that the company is desirous of 
making friends among the public. Such a state- 
ment will usually reveal the company's attitude 
toward public relations and will show how its pol- 
icy is being carried out. The following excerpt 
from a section called "Making Friends of Cus- 
tomers," in the report of the Cincinnati Gas & 
Electric Company, illustrates part of such a state- 
ment. 

We have learned that it is by no means sufficient to 
provide adequate service of quality beyond criticism, 
and at rates among the lowest in the nation, in the 
hope that these things will speak for themselves. We 
find it advisable to tell our story to our customer pub- 
lic endlessly, by every publicity medium available — 
radio, the daily press, bill board, direct mail, and per- 
sonal sales efforts. We have a story of dependable 
low cost service which is worth telling, but it won't 
tell itself. Every line of our publicity is expressed in 
terms of the customer's interest, picturing what the 
Company does for the customer in the way of service, 
convenience and labor saving, at low cost. More 
than this, in our newspaper and radio publicity we 
offer helpful information for which our customers are 
grateful — suggestions for the better use of gas and 
electricity, recipes, household hints, and other prac- 
tical services. As a Company, we realize our obliga- 
tion of good citizenship in each community we serve, 
and our duty to participate in all activities of a civic 
or community nature. 

We look upon our public relations program as busi- 
ness insurance — as a sound means of maintaining a 
favorable attitude towards continued profitable oper- 
ation of the Company. In addition to its public rela- 
tions program, the Company also invests in business 
promotion advertising. Gas and electricity must be 
sold like any other commodity. . . . 

COVERAGE OF PUBLIC- 
RELATIONS ACTIVITIES 

A company's public-mindedness is also shown in 
280 



its public-relations activities. Some companies re- 
port quite fully on such activities in the annual 
report. A number apparently keep silent about 
their public-relations programs. It would seem 
logical that if management considers public rela- 
tions important enough to spend money on im- 
proving them, it should report in detail upon 
what it has done. 

A page or more of clippings about the company 
is another way of reporting on public relations. 
Mentioning how many times the company was in 
the news also reflects a lively interest in gaining 
public favor. Westinghouse Electric Corporation 
reported one year that more than 4000 newspa- 
pers, general magazines and trade publications 
carried news stories and special articles during the 
year on Westinghouse activities in the fields of 
research, engineering and production. 

CHECKLIST FOR PUBLIC- 
RELATIONS ACTIVITIES 

The following checklist is suggestive, rather than 
exhaustive, of public-relations activities that might 
be covered in annual reports. A separate check- 
list is given below for public-relations activities 
directly affecting the community in which the 
company operates. 

1. Public tours of company properties. 

2. Educational tours for school students. 

3. Distribution of company literature to the 
public. 

4. Reprints of advertisements explaining serv- 
ice problems to the public. 

5. Talks by company officials on the position 
and problems of the company and the in- 
dustry. 

6. Cooperation with industry-wide public-rela- 
tions programs. 

7. Displays at public fairs and contributions 
toward comfort of the public at such fairs. 

8. Permanent educational exhibits. 

9. Promotion of company's products through 
group meetings, schools, institutes and home 
demonstrations. 

10. Public fellowships and scholarships offered 
by the company. 

1 1 . Loans of company property for public events. 

12. Games won by company's athletic teams. 

13. Awards to company by government and com- 
munity groups. 



*_ 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



14. Institutional advertising to create better 
public understanding of general business 
facts. 



CHECKLIST FOR COVERING 
COMPANY-COMMUNITY COOPERATION 

The following checklist may be used in reporting 
upon company-community cooperation to pro- 
mote industrial, commercial and cultural progress 
in the area. 



1. 
2. 

3. 

4. 

5. 
6. 

7. 

8. 

9. 
10. 



11. 

12. 

13. 
14. 

15. 

16. 



17. 



18. 



19. 



Status of company-community relations. 
What the company is doing to promote com- 
munity understanding. 

Proportion of community people employed 
by the company. 

Company expenditures in the community 
and its patronage of local business. 
Representation of employees in civic life. 
Community activities in which employees 
and executives are active. 
Employee tours to projects maintained by 
community-fund contributions. 
Company program to promote industrial 
and community development. 
Growth of the area served by the company. 
Analyses of territory served, agricultural in- 
terests, industries and other items of inter- 
est in the area. 

Company's efforts to attract new business to 
the community. 

Cooperation with chambers of commerce 
and business bureaus. 
Development of new industries. 
Booklets supplied by company in its com- 
munity-development program. 
Reprints of advertisements publicizing the 
territory served. 

Projects undertaken in conjunction with 
civic and government groups; for example, 
company sponsorship of 4-H Electric Club, 
student contests, efforts to improve forestry 
practices. 

Contribution of "perimeter parking lots" by 
transit company to relieve downtown con- 
gestion. 

Meetings of board of directors with business- 
men and civic and industrial leaders in ter- 
ritory served by the company. 
Future plans for community cooperation. 



EDUCATIONAL MATTER 

A company with a broader audience in mind for 
its annual report than its own stockholders may 
devote a substantial part of the report to educa- 
tional material. A drug company, for example, 
included a four-page story on the origin and de- 
velopment of newly discovered drugs. The pub- 
lic has an appetite for such stories. A manufac- 
turing company included the story of its products 
from the raw materials stage to it's-ready-to-use 
state. Another example of interesting educa- 
tional material is given at page 29. 

BUSINESS POLICIES 

Real concern for public welfare may be shown in 
statements of business policy like those discussed 
at page 23. A good example is given in the ex- 
cerpt from a General Motors Corporation report 
at page 60. The statement reflects an aim to 
achieve lower prices and higher quality, both of 
which directly benefit the public. The statement 
at the same time explains some important eco- 
nomic truths. 

GETTING THE REPORT 
TO THE PUBLIC 

To gain public goodwill through its annual re- 
port, a company must not only prepare the report 
with that objective in mind but must see that the 
report reaches the public. The following ways 
of publicizing the report are discussed below: 

1. Distribution to special publics. 

2. Publicity in the press. 

3. Paid advertisements. 

4. Radio and television. 

THE LITTLE PUBLICS 
OF A BUSINESS 

Nearly every company that publishes an annual 
report has several little publics, beyond its stock- 
holders and employees, among the following 
groups: 



1. 

2. 

3. 
4. 
5. 

6. 

7. 



Those who give investment advice. 
Those who publish financial information. 
Those who extend credit. 
Users of the company's products and services. 
People in the community, if the company is 
identified with it. 
Labor organizations. 
Students of business. 

281 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



In these groups are the people to whom a com- 
pany will want to send its annual report if it is 
eager to spread its story. For purposes of build- 
ing up a mailing list of such people, the following 
enumeration 1 may be helpful. It is arranged in 
the order in which the groups are most frequently 
included on mailing lists of companies that dis- 
tribute their reports widely. 

Banks and bankers. 

Brokers, investment houses, counselors. 
News, financial and trade publications. 
"Requests." 

Customers, distributors, suppliers. 
Educators or educational institutions. 
Community leaders, clergy. 
Employes, supervisory employes, execu- 
tives. 
Executives of leading companies. 
Libraries. 

Statistical agencies. 
Public officials. 
Other companies in industry. 
Insurance companies. 
Business acquaintances of executives. 
Farm and labor organizations. 
Trade organizations. 
Stock exchanges, members. 
Government agencies, SEC, ICC. 
Advertising agencies. 
Creditors. 

Credit organizations. 
Credit-opinion makers. 
Members of underwriting group. 
Radio talent. 
Public-relations directors. 
Prospects. 

Schools of business administration. 
Controller institutions. 
Utility executives. 

DISTRIBUTING THE REPORT 
IN THE COMMUNITY 

A company that pays close attention to its com- 
munity relations will usually distribute its annual 
report to strategic points and people in the local- 
ity. The Caterpillar Tractor Co., for example, 
has been outstandingly successful in community 



relations. 



It maintains a mailing list of 7300 



local community leaders in the fields of civics, 
government, education, religion and agriculture. 
The annual report is just one of the company 
publications that are sent to these people. In 
addition, the report, as well as other company lit- 
erature, is placed in doctors' and dentists' offices, 
barber shops, beauty parlors, billiard rooms and 
bowling halls to get the attention of residents of 
the community. 

The Champion Paper and Fibre Company dis- 
tributes its employee report, rather than its finan- 
cial report for stockholders, to several classes of 
people, one of which includes businessmen in the 
cities in which the company operates plants. The' 
following is an example of the type of letter that 
accompanies the report. 

Dear : 



1 From A Survey of Stockholder Relations Activities, prepared 
by Verne Burnett, Public Relations Consultant, in cooperation 
with Association of National Advertisers, Inc., and The Journal 
of Capital. 

282 



Enclosed is a copy of the 1946 Annual Report to 
Champions, now being distributed to the Company's 
6880 employees at Hamilton, Canton and Houston. 

The Report presents in graphic form the growth 
and development of the Company over the last ten 
years. The sales value of our products has more than 
doubled in this time, with a corresponding rise in 
costs. Employees, with a 20% increase in numbers, 
were paid more than twice as much in 1946 as they 
received ten years ago. Pictured, too, is the increase 
in Company tax money going to the support of our 
government during the war years. The importance 
of the common stockholder in Company operations is 
explained. 

Champion's outlook for the future is bright. The 
Report indicates that $5,000,000 was spent last year 
to modernize and expand plant facilities. During 
the coming year additional large expenditures will be 
made to complete the program, intended to maintain 
the Company's competitive position, assure customers 
of more and better products, and provide continued 
opportunity for Champion employees and protection 
for the stockholders' investment. 

The Report gives recognition to the many em- 
ployees who have had long continuous service with 
the Company. Figures show that of Champion's 
6880 employees, more than 41% have records in ex- 
cess of ten years. 

We hope that you find the Report of interest, and 
that it will give you an insight into the personality of 
Champion and the policies that have made this Com- 
pany one of the leaders in the industry. 

Yours very truly, 

WAYS OF TRANSMITTING 
THE REPORT 

A few companies attach a card of the official send- 
ing the report. Others have a brief message from 



kkM 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



the president printed on a small card with a flap 
that fits over the cover of the report. Electric 
Boat Company used the following miniature, 
processed letter of transmittal. 



the report with a business card enclosed. Best 
results have been obtained by typing or autotyp- 
ing letters of transmittal individually. However, 
where this is not practical, mimeographing is used. 



Electric Boat Company 


33 PINE STREET 


New York 5, N. Y. 


JOHN JAY HOPKINS 


PRESIDENT 


This is the Annual Report of the 


Electric Boat Company for the year 


1946. It is a record of some of the 


things the Company accomplished during 


the first full peacetime year. 


It was prepared primarily for our 


stockholders, but we think you will be 


interested in it, too, because it 


describes the postwar conversion 


experiences of a medium-sized company 


operating under the American system 


of free enterprise. 


Sincerely yours, 



Fig. 166 



The Borden Company supplies its local man- 
agers in communities where the company oper- 
ates, with form letters for transmitting the reports 
to: (1) Employees, (2) officers of milk producers' 
organizations, (3) officers of consumer groups, 
women's organizations, and so forth, (4) Chamber 
of Commerce officials, presidents of local business 
and service clubs, local bankers, key public of- 
ficials and other community leaders, (5) school 
principals and educators. The local managers 
may use the letters if they wish, or may send out 



A sample of each of the letters to the five groups 
mentioned is reproduced below. 

To employees 

Dear Pete: (or) 

Dear Mr. Jones: (or) 
Dear Employee: 

The day when the customer can pick and choose is 
back. As customers, you and I are glad of it. We 
like to shop around — to make sure we are getting the 
most for our money. 

283 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



The people who buy the many products sold by 
Borden's feel the same way. They want to know 
what they are spending their money for. They also 
want to know about the company whose products 
they buy. Only as long as our customers are con- 
vinced that we give them the best in service and prod- 
ucts, will we maintain the leadership that keeps our 
company sound and our jobs secure. 

I am enclosing a copy of Borden's 1946 Annual Re- 
port to Employees and Stockholders. Attached to it 
is an introductory note from our company's president 
— Theodore G. Montague. This message and the re- 
port contain much information that will interest you. 
The report also will help you answer questions of 
friends and customers about Borden's and its prod- 
ucts. If you need additional copies, I shall be glad 
to supply them. 

Sincerely yours, 

Signature 

Title 



To officers of milk producer organizations 

Dear Mr. : 

Since Borden's is an important market for farmers 
in this area, I know you are interested in the activities 
of my company. The attached copy of our Annual 
Report gives you the latest information about our 
operations. It covers not only milk and milk prod- 
ucts, but also our many units outside the dairy busi- 
ness. Some of these are of special interest to you and 
others in the farm field. 

Sincerely yours, 

Signature 

Title 

To officers of consumer groups, -women's organi- 
zations, and so forth 



Dear Miss — 
Dear Mrs. — 
Dear Madam 



(or) 
(or) 



Consumers today Avant to learn all they can about 
the things they buy and the companies that make 
them; and they are particularly interested in finding 
ways to make better use of products. 

The attached copy of my company's Annual Report 
includes information about our operations and prod- 
ucts. I believe you will be especially interested in 
the article about the Borden Kitchen. There our 
staff of home economists tests our products under 
home conditions. I will be pleased to hear any com- 
ments you may have. 

Sincerely yours, 

Signature 

Title 

284 



To chamber of commerce officials, presidents of 
local business and service clubs, local bankers, key 
public officials and other community leaders 



Dear Mr. 
Dear Mrs. 
Dear Miss 



(or) 
(or) 



Since the progress of this community depends so 
much on the businesses that operate here, I know you 
are always interested in the activities of companies 
like mine. 

With this in mind I am enclosing a copy of our An- 
nual Report. It gives you the latest information 
about our operations. You also may be interested to 

know that in last year our company 

Name of State 
— for raw materials, salaries and taxes— in 



spent f- 

addition to expenditures for other purposes. 

Sincerely yours, 

Signature 

Title 

Note to local Borden manager: The information 
for filling in the blank space in the last sentence of 
the above letter is in the P. R. Memo headed "DATA 
ON BORDEN SPENDING.'' 

To school principals and educators 



Dear Mr. : (or) 

Dear Miss : (or) 

Dear Mrs. : 

Last spring — for the first time — we sent copies of 
our company's Annual Report to educators in this 
area. The response was so favorable we are distrib- 
uting them again this year. 

Teachers of economics, home economics, social sci- 
ences and many other subjects wrote us that they used 
our report in the classroom. Some said it was useful 
in discussing the activities of a typical American busi- 
ness; others found the report helpful in showing how 
companies contribute to the economic life of com- 
munities in which they operate. 

If you wish additional copies of the attached report 
for your associates, I will try to provide them. I will 
be very interested in any comments you may have. 

Sincerely yours, 
Signature 
Title 

INCREASING DISTRIBUTION 
OF THE REPORT 

To get its report to a large audience, a company 
may include a business-reply card inviting recip- 
ients to fill in the names and addresses of friends 
who would be interested in receiving a copy of the 



J 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



report. An example of such a card is given be- 
low. 

[Perforation here] 



1 H you know of one or two friends who 
would be interested' in receiving a copy of 
our 46th ANNUAL REPORT, please fili in and 
sign the attached return card — which re- 
quires no postage. 

We shall be glad to comply with your re- 
quest while our limited supply of copies lasts. 

ELECTRIC BOAT COMPANY 



These two parts were attached at the perforation. 
[Perforation here] 






ELECTRIC EOAT COMPANY 
33 Pine St., New York 5, N. Y. 

Gentlemen; 

Please send a copy of your 46th Annual Report 
to the following: 






Name . 
Address. 

Name . 
Address. 



Signature 



Address 



Courtesy, Electric Boat Company 

Fig. 167 



PUBLICITY IN THE PRESS 

Practically every public-minded company seeks 
publicity for its annual report and tries to help 
editors prepare the story. The following descrip- 
tion of how the Pennsylvania Railroad Company 
handles publicity for its annual report has adapt- 
able ideas. 

For a great many years the Pennsylvania Rail- 
road System has sent copies of its annual report to 
daily newspapers — about 850 in 1947 — and to rail- 
road, financial and similar publications, a day or 
so in advance of sending it to stockholders. A 
release accompanies the report in each instance. 
This release, prepared by the publicity depart- 
ment, brings out the principal facts regarding 
earnings, dividends, business done, financial con- 
dition of the company and the like. It includes 
condensations of the most important parts of the 
president's general remarks. The report and re- 
lease are brought to the newspapers by local rail- 
road employees — officers, supervisors and others. 
These employees have been appointed to act for 
the publicity department in delivering material to 
the newspapers in their respective communities. 

GUIDE FOR WRITING 
ANNUAL-REPORT RELEASES 

Whoever writes the annual-report release should 
first study annual-report stories in the newspapers 
to which the release is to be sent. This study will 
reveal what subjects are considered interesting to 
the public and how they are treated. Although 
a different set of facts may be revealed for each 
newspaper, the study will nevertheless help the 
publicity department draw up an adequate release 
- — one that will aid the editors in preparing what 
they want to print. 

A study of fifty annual-report stories of indus- 
trial companies that were given important space 
in the financial columns of two leading New York 
City newspapers, brought out the following facts: 

1. A typical story is from five to seven inches 
long. 

2. The larger the corporation, the more likely it 
is to be given space-preference by the editor. 
Therefore, if possible, avoid releasing the 
story the same day that a giant corporation 
makes its release. 

3. Quotes from reports criticizing government 
policies, favoring particular legislation, point- 

285 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



ing out injustices to the industry and the like, 
rarely get into the published story. 

4. The following subjects are treated most fre- 
quently, in the order mentioned: 

(a) Income and earnings per share, com- 
pared with the previous year. 

(b) Gross and net sales, compared with the 
previous year. 

(c) Current assets and liabilities; working 
capital. 

(d) Orders on hand and demand for prod- 
uct. 

(e) Plant expansion, modernization and new 
financing. 

(f) Sales programs. 

(g) Outlook for future. 
(h) Taxes. 

(i) Labor relations, wages and employment. 
(j) Prices. 

(k) Foreign activities. 
(1) Inventories. 
(m) Where the sales dollar went. 
(n) Research. 
(o) New products. 

(p) Nonrecurring items (stock splits, tax 
refunds, strikes) . 

5. The lead paragraph in most stories deals with 
earnings. Sometimes subjects (b) , (e) and 
(g) open the story. 

6. Few stories show profits as a percentage of 
net sales. The remedy is to show this figure 
prominently in the news release. 

RULES FOR PREPARING NEWS 
RELEASES ON ANNUAL REPORT 

When the annual report is ready to be released 
and the newspapers to which it is to be sent have 
been selected, the story should be prepared with 
strict observance of the following rules: 

1. Use 81/4" X 11" paper. 

2. Put the name, address and telephone num- 
ber of the sender and the name of the person 
responsible for press releases in the upper 
left-hand corner of the first sheet. Use an 
identifying, attention-getting letterhead only 
if a reputation for presenting newsworthy 
publicity to the editor has been established. 

3. Put the release date in the upper right-hand 
corner. If the story must be held until a 
certain date, mark it "Release (date) ." If 
it is to be printed at once, mark it "Imme- 

286 



diate Release." Specify whether morning 
or afternoon papers are intended. 

4. Leave the top third or half of the first page 
blank, except for the above information. 

5. Do not prepare a carefully balanced head- 
line; the newspaper will do that itself. Just 
indicate the contents in a short phrase. 

6. Double or triple space the copy. Leave 
wide margins on all sides. 

7. Do not split paragraphs from one page to 
another. 

8. Do not make the story too long. 

9. Send each paper an original. If there are 
more than a few papers on the list, mim- 
eograph the release. Do not send carbon 
copies of typewritten articles. 

10. Send a copy of the report along with the re- 
lease. 

11. Address the release to the proper editor by 
name, if there is no question as to who he is; 
otherwise, address him by title. 

ADVERTISING THE 
ANNUAL REPORT 

More and more companies are publicizing their 
annual reports through paid advertisements in 
daily newspapers of general circulation, in special 
newspapers such as the Christian Science Monitor 
of Boston and the San Francisco Commercial 
Neivs, and in leading financial and commercial 
dailies such as The Wall Street Journal, the New 
York Journal of Commerce and the Chicago Jour- 
nal of Commerce. Space is also frequently taken 
in magazines with special circulation in the fields 
of business and finance. Some companies with 
widely held securities insert advertisements in 
such foreign papers as The Statist and The Econ- 
omist, London publications, and in the Paris, 
France, issue of the Herald Tribune. 

The advertisements are not the conventional 
year-end balance sheets that banks, insurance com- 
panies and other financial institutions have been 
in the habit of publishing to satisfy legal require- 
ments. The modern annual-report advertisement 
has an attractive layout and interesting copy. It 
uses the following devices and features of the an- 
nual report to gain public attention: 

For illustrations. Reproduction of a few charts 
from the report; the cover; a map; specially pre- 
pared cartoons. 

For text. Summaries of the year's develop- 
ments that are of the broadest public interest; 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



for example, brief paragraphs on net earnings, 
labor-management relations, production and sales, 
product developments, research, who owns the 
company, taxes, retirement of debt, expansion, 
outlook. The text may refer to some things the 
balance sheet cannot show, such as achievements 
of the research laboratory, the policy to produce 
better products at lower prices or any other in- 
tangible "hidden asset." 

Statistics. Statistical highlights; simplified in- 
come statement, condensed balance sheet; distri- 
bution of the income. 

RADIO PUBLICITY— TELEVISION 

Several years ago when Caterpillar Tractor Co. 
discussed its annual report in a half-hour radio 
program on a local station, the president of the 
company said: 1 

From many communications, we believe we really 
did a good job when we went on the air. For in- 
stance, a farmer phoned a minute ago and told me 
that many of his neighbors heard the talk and that 
they were surprised to learn that the subjects em- 
bodied therein were involved in the routine of busi- 
ness. I am quite sure that the report and the broad- 
cast were really helpful ventures in both employee 
and public relations. Probably you know that Peoria 
is a town of about 125,000 and we constitute about 
one-half of the industrial employment and have a 
high-class, local radio station. This seems to be a 
combination of circumstances which makes a story 
such as ours possible. 

The reaction of the public to recent annual- 
report information broadcast on nationwide pro- 
grams by companies with time on the air has also 
been good. In these broadcasts, the report is re- 
ferred to only in the commercial. The radio mes- 
sage is timed to be broadcast after news about the 
report has been released through the press. The 
newspapermen must be given an opportunity to 
use the press releases before the broadcast is 
made. 

The person who writes the commercial mes- 
sages for the company's regular radio programs 
prepares the annual-report message as well. The 
script is invariably approved by a top-ranking of- 
ficer before it is released — the chairman of the 
board or the president. The announcement usu- 
ally builds up listener interest in the beginning. 

1 The Annual Report to Stockholders, Policyholders Service 
Bureau, Metropolitan Life Insurance Company, p. 80. 



It draws on parts of the report that are of impor- 
tance to the public, uses brief quotes and gives few 
statistics. 

Two radio messages used by the United States 
Steel Corporation in 1947 are given below. The 
response to the first announcements was exceed- 
ingly good and the company therefore referred 
again to the annual report in a succeeding broad- 
cast. The second time, the talk was about re- 
search and the announcer merely mentioned that 
the subject was covered in the annual report. 

First Commercial Message as Broadcast 

Good evening. During the past week I read a 
short but extremely interesting book. You won't 
find it on any list of Fiction or Non-Fiction best- 
sellers but copies have already gone to over a quarter 
million eager readers (Pause). I'm talking about 
United States Steel's Annual Report which is mailed 
to the Corporation's 225,000 stockholding owners, 
and is freely available to all of United States Steel's 
great family of over 275,000 workers, and to the pub- 
lic as well. 

In this 36-page report — well illustrated with excel- 
lent photographs — United States Steel tells the story 
of its operations and policies during the difficult 
reconversion year of 1946. Stockholders are shown 
with clearly presented facts and figures just how their 
invested savings were managed in terms of the Corpo- 
ration's receipts, expenses, and net earnings. 

In other words, this "Annual Report" puts all the 
cards right out on the table in true American style 
. . . and does the job with clarity, brevity, and sim- 
plicity. It tells of the Corporation's activities in re- 
search and technology ... in the improvement of 
facilities . . . and in sales and distribution. It out- 
lines 1946 development in such matters as Company 
Pensions and Group Insurance, Veterans back at 
work, including those physically disabled, and United 
States Steel's nationally famous Safety and Employee 
Training Programs. 

Yes, these and every other important phase of 
United States Steel's 1946 operations are covered in 
the Report. I wish I could tell you more about each 
of them but time says "No". Instead I'd like to read 
you just one paragraph — I believe it expresses very 
clearly the spirit of the entire Report and of the 
United States Steel Corporation. (Pause) It reads: 
"United States Steel conformed its activities to the 
needs of the nation during days of war and it now 
pledges anew the maximum use of its resources to 
help America develop and prosper during what it 
hopes may be a lasting period of peace. U. S. Steel — 
in the discharge of its great responsibility to its stock- 
holders, its employes, and the public — recognizes that 
U. S. Steel prospers only as the nation prospers." 

287 



WINNING PUBLIC GOODWILL THROUGH THE ANNUAL REPORT 



Second Commercial Message as Broadcast 

The Annual Report of United States Steel of which 
I spoke a few minutes ago, gives a brief account of the 
many jobs done by the industrial family that serves 
the nation . . . the hundreds of different steels and 
steel products for every American industry, the ships, 
cement, transportation, bridges, buildings, farm prod- 
ucts . . . the thousands of things which United 
States Steel makes and does. 

And one section of the report interested me very 
much because it dealt with the people who accom- 
plish all those things . . . the 275,000 employees of 
United States Steel. Today, one out of every four 
of them is a veteran. Among; all the workers, United 
States Steel's training program has been continued 
vigorously, educating men to do better jobs, and fit- 
ting them for higher and more responsible positions. 

During the year more than 1800 employees retired 
on pensions. Their average length of service with 
United States Steel was 36 years. And during the 
year, more than 85 per cent of all the employees were 
insured under the Employees' Group Life Insurance 
Plan for almost $700,000,000. 

As for pay, the average hourly earnings of wage 
employees in U. S. Steel's steel manufacturing oper- 
ations, compared with the average hourly earnings of 
workers in other industries, shows that United States 
Steel's workers are among the highest paid in Ameri- 
can industry. According to figures published by the 
Government Bureau of Labor Statistics, the average 
hourly earnings of these U. S. Steel workers in Sep- 
tember, 1946, the most recent month compiled, were 
nineteen and a half per cent higher than the average 
hourly earnings of workers in all manufacturing in- 
dustries. 

These are a few of the facts about the employees of 
United States Steel. And they indicate that United 
States Steel is doing its best to fulfill its responsibility 
to its employees. Fulfilling its responsibility to all 



three groups . . . the employees, the stockholders, 
and the public ... is the major job of the indus- 
trial family that serves the nation . . . United States 
Steel. 

For a discussion of how an annual report was 
televised, see page 241. 

AN ANNUAL-REPORT PUBLICITY KIT 
FOR LOCAL MANAGEMENT 

The preparations The Borden Company makes to 
give publicity to its annual report is an example 
of careful planning for maximum public-relations 
benefits. The public relations department pre- 
pares an annual-report kit to assist local manage- 
ment in the use of the annual report. The 1946 
kit consisted of a manila file-folder labeled "An- 
nual Report — 1946" on the tab and "Making Bor- 
den's Annual Report Pay PR Dividends" on the 
face. It contained, the following mimeographed 
material: 



1. 



2. 
3. 

4. 

5. 



6. 



A PR Memo explaining the purpose of the kit 
and telling when the report would be shipped 
to operating units. 

Suggestions for using the annual-report kit. 
Form letters for transmitting the report to the 
various groups mentioned at page 283. 
A news release for local newspapers. 
A PR Memo containing information on Bor- 
den's disbursements by states, with instruc- 
tions for use of the material. 
A schedule of stories, pictures and charts on 
the annual report for use in employee pub- 
lications. 

A sample of Borden's Photo Flash for bulletin 
boards. 



288 



CHAPTER 21 



ATTRACTIVE PAGES 
FROM ANNUAL REPORTS 



The illustrations in this chapter show page sizes, 
column widths and type faces and sizes that have 
been used successfully in modern annual reports. 
Many more attractive pages could have been 
added; obviously, those reproduced do not illus- 



trate all the styles of type or all the techniques and 
creative ideas that have enhanced the physical ap- 
pearance of a page of text. The present group, 
however, is representative of the most effective 
pages in a recent crop of modern annual reports. 



Pa°e size 
Column width 
Type 



10" x 8 " 

21 picas and 19 picas 

10 pt. Bodoni, 2 pt. lead 



craft lor west coast aircraft manufacturers and also de- 
veloped a number of interesting adjuncts to the packag- 
ing business, such as the acquisition of a large fleet of 
heavy trucks and trailers and the formation of a Plastics 
Division from which was developed the first plastic 
strippable coating used by the Army and Navy on air- 
craft shipped to the theatres of war. 

During the past year they have expanded their 
packaging business and it now embraces all types of 
commodities for export including automotive equip- 
ment, airplanes, heavy machinery, household commodi- 
ties and the like. They have just completed an addition 
to their Mineola plant and have re-established and re- 
opened export packing branches at Port Newark, N. J., 
New Orleans, La., and Oakland. California. All this is 
in addition to the general building Construction 
Division and the Trucking Division which operates 
large cranes for steel erection, excavating, material 
handling and items requiring similar equipment. 
Their Trucking Division operates the largest fleet 
of heavy duty truck equipment on Long Island 
with no material handling operation too large or 
too small for their interest. 

Their organization has been characterized as 
"the Industrial Department Store'' and a business 
of this type obviously requires banking arrange- 
ments sufficiently flexible to meet its varying finan- 
cial requirements. Dade Brothers and the bank are 
mutually happy with their association. 





Fig. 168 



Courtesy, The Franklin Square National Bank 



289 






Page size Si/ 2 " X H" 

Column width 17l/£ picas 

Type 12 pt. Textype, <S pt. lead 



JON 



S'^a'Af ■■■ 




New records of production, sales and 
earnings featured operations of the Phos- 
phate Division during the past year. 

In Florida, the Peace Valley mine con- 
tinued its outstanding production of high 
grade phosphates. Metallurgical practice 
was further improved, and installations 
were made to realize both grade and ton- 
nage from these developments. The Peace 
Valley mine produced in excess of one 
million gross tons during the year— twice 
its original designed capacity and a rec- 
ord production for an individual ore mine 
in the domestic phosphate industry. 

Achan— a modern, standard grade mine 
—was successfully brought into operation 
a year ago and has been further enlarged. 
Construction continued at the new Nora- 
lyn mine which should be in operation 
next January and add substantially to the 
output of high grade phosphates. 

The Tennessee phosphate mines oper- 
ated at capacity through the year with 



very satisfactory results. Facilities were 
installed to increase substantially the ca- 
pacity for finely ground phosphate for 
direct application and for electric furnace 
raw material. 

Demand for phosphates continues in 
excess of supply. Foreign demands dur- 
ing the year permitted re-establishment 
of a profitable pre-war export trade which 
will be expanded when tonnage is avail- 
able from the Noralyn mine. A wholly 
owned English subsidiary— International 
Minerals & Chemicals Ltd.— has been or- 
ganized with headquarters in London to 
promote European sales. Primarily, how- 
ever, attention is directed towards the 
domestic markets where all indications 
point toward a continued strong demand. 



NO PROD 




The new plant at San Jose, California, 
producing mono sodium glutamate and 
related products from Steffens filtrate was 



Courtesy, International Minerals & Chemicals Corporation 



Fig. 169 



290 



■^ 



Page size 
Column width 
Type 



8i/4" x 1014" 

17 picas 

1 1 pt. Beton Medium, 3 pt. lead 



Since ihis composite miner earns an 
average of more than thirteen dollars for 
each day worked, he is a payer of income 
taxes and an important source of purchas- 
ing power, as well as an integral self-sup- 
porting part of his community. In a great 
many cases he owns his own home, and 
only 19 percent of the mine workers rent a 
house from the company. 

RESULTS FROM 1946 
OPERATIONS 

Production 

The average Pittsburgh Consolidation 
Coal Company miner produced nearly 
1,500 tons of coal during 1946. While this 
is lower than his performance in 1945, due 
to the 60 days of lost production involved 
in the two major strikes which occurred 
during the year, his efficiency increased 
and he produced more tons per day 
actually worked. 

This improvement reflects not only the 
increasing skill of the miner but also the 
newer and better tools provided by the 
company. Through its training program 
the company endeavors to develop the 
safer and more efficient methods of opera- 
lion that are possible with new equipment 
and thereby improve the income and 
ultimate security of both the miner and 
the company. In 1946, our average worker 
at underground mines produced 7.35 tons 
per day worked as compared with the 
national average estimated at 5.1 tons. 

The company as a whole produced a 
total of 18,124,157 net Ions during 1946. 
The two strikes mentioned above as well 
as severe car shortages caused a severe 
loss of potential production. It is estimated 




Joe and turnmaie, Ralph, set sharp- 
ened hits inlo bar of the cutting 

machine. 



Courtesy, Pittsburgh Consolidation Coal Company 



Fig. 170 



291 



Page size 
Column width 
Type 



7" X 10 " 

30 picas 

12 pt. Caledonia, 4 pt. lead 



GOVERNMENT BUSINESS 

Emerson's Engineering Division is engaged in research and develop- 
ment work under contracts with the Army and the United States Bureau 
of Standards to perfect and extend the use of electronic equipment 
for military use. This is a type of peacetime activity in which our Gov- 
ernment is greatly interested and we shall continue to maintain a 




segregated competently staffed and well equipped department for the 
purpose. 

The Company maintained a separate division during the year which 
acted as a central agent for the War Assets Administration in the disposal 
of government surplus electronic equipment. Inasmuch as such surplus 
equipment is almost entirely disposed of, this division will be discon- 
tinued early in 1948. 



EMPLOYEE RELATIONS 

As in the prior year, no work stoppages due to labor dissatisfaction or 
other causes occurred in the Emerson Badio plant or in the plants of any 
of its subsidiaries during 1947. The Company concluded a renewal of 
the contract with the Union representing its factory employees in Janu- 
ary, 1947, providing for a wage increase, following the same pattern as 



Courtesy, Emerson Radio & Phonograph Corporation 



Fig. 171 



292 



Pas:e size 
Column width 
Type 



81^" X 11" 

30 picas 

10 pt. Garamont, 2 pt. lead 



ANNUAL 



REPORT 



We regret chat the cold statistical facts shown on a balance sheet fail to recognize 
the importance of hidden assets such as personnel, organization, enthusiasm, oppor- 
tunity, research, and product and customer good-will. 

PLANTS AND PROPERTIES 

Three new companies were acquired during the year 1946, including the Arcade 
Manufacturing Company acquired in January as mentioned in last year's report, which 
brings to a total of eight the companies which have been acquired within the past 
two years. The A. H. Ross Company, located in Ludlow, Kentucky, was acquired in 
April. This company, operated as a subsidiary, employs approximately 90 people in 
the manufacture of package cartoning machines. A cartoning machine is a mas»- 
production device for setting up printed cartons and inserting therein products and 
literature, and then closing the carton. The Ross machine has some new patented 
features which, combined with the market potential for equipment of this type, 
should provide a profitable addition to our line of machine tools and equipment 

The Ohmer Corporation was acquired in November 1946 and brings with it an 
old established name in the production of cash registers and taxi meters. The Ohmer 
Corporation is located in Dayton, Ohio, and employs approximately 950 people 

PRODUCTION AND MARKETING 

Although shipments for the year 1946 reached the all time high of $40,487,000, 
the backlog of orders recorded at the end of the year was more than $45,000,000, or 
an aggregate backlog of nearly one year. In the various product classifications, 
this ranged from backlogs of two months to two years; indicating that, while 
some products continued to enjoy a "seller's market," there were also prod- 
ucts which indicate a return to normal conditions in the near future. 

In anticipation of this return to competitive markets, we have formed 
a Market Research Department, whose activities are intended to insure our 
getting the fullest possible return from all potential markets. 

The personnel of our export corporation, Rockwell International Corpo- 
ration, has been expanded during the year and is currently engaged in de- 
veloping world-wide markets for all our products. Products for export arc now 
approximately 7% of our total shipments. 

DEVELOPMENT AND ENGINEERING 

Our laboratories and engineering offices are diligent in their efforts to improve 
our products, solve customers' problems, and develop new profitable items which 
will continue our leadership in the respective fields. Each factory has its own testing 
laboratories designed for work in connection with that factory's products and, in 
addition, at several locations more complete facilities are available for metallurgical, 
mechanical, and chemical research. We have instituted a Student Engineering Course, 
which permits the graduate engineer to take two years of study in the various depart- 
ments of the company at the conclusion of which he is qualified to hold a position 
in sales, engineering, research, or manufacturing operations. 




Courtesy, Rockwell Manufacturing Company 



Fi 3 . 172 



293 



Page size 8\//' X !'" 

Column width 33 picas 

Type 12 pt. Scotch, 3 pt. lead 




. slots 



Our Company pioneered in the development of the soybean industry. 
Product ion figures of individual soybean processors are not available, and 
hence no definite statement can be made as to our position in the industry, 
but, based on such records or data as are available, it is believed our Com- 
pany is not only the oldest but also the largest processor of soybeans in the 
United States. 

Our soybean operations consist of milling the soybeans and removing 
the oil by either the expeller process or the extraction process. The extrac- 
tion method removes the oil from the soybeans by dissolving it in hexane 
and recovers more oil from each bushel than is possible with the expeller, or 
screw press, method. The oil is then delivered to our oil refinery division for 
further processing or is sold as crude oil. The rest of the soybean is either 
sold as soybean oilmeal or is processed into specialties, such as soy sauce. 
Our Company also manufactures soy flour. 

An all-time record in the production of our soybean division was 
established in 1945. This record production was made possible by the com- 
pletion, in the late spring, of our new $2,000,000 extraction plant. It has a 
capacity of more than 500 tons of soybeans daily and is believed to be the 
most modern one of its kind in the world. After some minor difficulty in 
starting the plant, it has operated in a satisfactory manner. We now have 



Courtesy, A. E. Staley Manufacturing Co. 



Fig. 173 



294 



k 






Pas;e size 
Column width 
Type 



7" X 10" 
15 14 picas 
10 pt. Bodoni Book, 3 pt. lead 



r 



TOTAL OPERATING 


REVENUES 


in 


creased 


5 per 


cent 


over 1945. In 


1946 


sales 


of 


electric 


ty ac- 


coun 


led for 80 per 


cent 


gas 


lor 


15 


pei 


cent. 


stear 


n for 4 per cent. 


other 


revenues 


for 1 


pe 


r cent. 



Total taxes I including the amounts repre- 
sented by the special income deductions) 
amounted to $69,664,981 for 1946 and $70,- 
485,073 for 1945. 

A table showing detailed tax comparisons 
for the years 1946, 1945 and 1937 is given on 
page 8. Taxes for 1946 took about 22 cents 
out of every dollar of revenue. 

DIVIDENDS 

Regular dividends of $1.25 a share were 
paid quarterly on the $5 cumulative preferred 
stock and quarterly dividends of 40 cents a 
share were paid on the common stock. The 
Company's dividend record for the common 
stock for the last fifteen years is given below: 



1946 . 


. . $1.60 


1941 . . 


. SI. 80 


1936 


. . $1.75 


1945 . 


.. 1.60 


1940 . . . 


. 2.00 


1935 . . 


.. 1.00 


1944 . 


.. 1.60 


1939 . . . 


. 2.00 


1934 . . 


2.25 


1943 . 


. 1.60 


1938 . . . 


. 2.00 


1933 . . 


.,. 3.45 


1942 . 


.. 1.60 


1937 . . . 


. 2.00 


1932 . . 


. . 4.00 



BALANCE SHEET 

Utility plant: With a resumption of industrial 
construction, total gross additions to utility 



plant for 1946 increased substantially, total- 
ing $30.077.970. The net after retirements and 
adjustments was $11,846,862, which brought 
the total utility plant to $1,186,342,020. 
Except for a balance of about $10,000,000 
for plant acquisition adjustments, or items of 
a similar character in the accounts of two sub- 
sidiary Companies— one a utility and the other 
a non-utility— the utility plant as shown on the 
consolidated balance sheet now conforms to 
"original cost" as defined by the uniform sys- 
tems of accounts prescribed by the New York 
State Public Service Commission. Questions 
have been raised, however, as to certain items 
of utility plant, by representatives of the Com- 
mission, which are discussed on pages 17 and 
18 under the heading "Notes on Proceedings 
before the Public Service Commission!' 
Cash resources of the System Companies 
(that is, the total of cash and U. S. Treasury 
certificates of indebtedness) at the close of the 
year amounted to $89,242,744, representing 
an increase during the year of $11,918,500. 
Accounts receivable showed an increase for 




• 7 • 



Courtesy, Consolidated Edison Company of Nczv York, Inc. 



Fig. 174 



295 



Page size 
Column width 
Type 



8" x JO 1 /^" 

19 picas 

10 pt. Baskerville, 3 pt. lead 



GENERAL MOTORS 

ing the hardenability of steels. During the war this 
method of testing was used to develop the alter- 
nate steels which helped so greatly to conserve scarce 
strategic materials. Since the war, continued work in 
this held has contributed directly to greater durabil- 
ity of mechanical parts in our commercial products. 
Important developments toward increased dura- 
bility also have come from General Motors studies 
in the field of strength ot materials. These studies 
have shown, for example, that "shot peening" 
lengthens the life of such vital parts as gears, con- 
necting rods, springs and crankshafts. In this tech- 
nique steel or iron shot are blown against the highly 
stressed surfaces of such parts. These thousands of 
tiny, hammcrlike blows increase the effective strength 
of these parts and lengthen their uselul life. 

How science builds quality 

An important function of the industrial laboratory 
is to put to practical use the techniques and instru- 
ments developed for research in the basic sciences. 
For example, General Motors has led in the appli- 




The tooth contour ot a small gear being inspected for errors or inaccuracies by means of 
o comparator. This instrument throws an image, magnified up to 100 times actual size, on 
the screen against a tracing of the contour drawn to specifications. 



20 



cation of the spectrograph to problems of material 
analysis. Spectrographs are now regularly used in 
many GM foundries for rapid determination ot the 
chemical content of molten metal before it is poured 
into molds. It makes possible accurate control of 
alloying elements. Impurities can be detected even 
in minute quantities. A similar development is the 
recent use of the Infra-Red Spectrometer in GM re- 
search laboratories to study automobile fuels. With 
it an analysis of the composition of fuels can now be 
made in 20 minutes. Known chemical methods of 
making such an analysis would take two weeks. 

Process development 

The development of better processes begins where- 
basic research leaves off. It is the job of the process 
development engineer to improve existing tech- 
niques and to translate new ideas and methods into 
practical and economical production methods. His 
work often requires as much imagination and careful 
experimentation as did the original development. For 
many years process development has been carried on 
in the various General 
Motors divisions. Recently 
the central office Process De- 
velopment Section was or- 
ganized as a coordinating 
agency to carry out research 
on special process develop- 
ment problems referred to 
it by the divisional staffs. 

Proving the product 



Another important ac- 
tivity that contributes to 
product improvement is 
carried on at the General 
Motors Proving Ground. 
All GM automotive divi- 
sions use the facilities of the 
Proving Ground to find out 
how proposed new models 
stand up under all weather 
conditions and on all types 



Courtesy, General Motors Corporation 



Fig. 175 



296 



i- 



Page size 
Column width 
Type 



9" X 12" 

13 picas 

12 pt. Garamond, 2 pt. lead 




J-Nvestments owned by the 
Chesapeake and Ohio on Decem- 
ber 31, 1944 are listed on pages 
42 to 44 of this report. There 
were no important changes made 
in the list during the yeat. As 
shown on the simplified balance 
sheet, investments were carried at 
582,049,130 after the deduction 
of resetves credited for rhe adjust- 
ment of cost of such securities. In- 
vestments at book value thus com- 
prise 12.4 per cent of the assets of 
the company. The road's invest- 
ments fall into three principal 
classifications, as follows: 

1. Those representing investments 
in other railroads which are di- 
rectly connected with the com- 
pany's operations, some of which 
are used jointly with other rail- 
roads. 

2. An entire or partial ownership 
in companies which are not di- 
rectly connected with the opera- 
tion of the road. 

3. Investments in the securities of 
other railroads mostly purchased 
in connection with the consoli- 
dation policy of Congress as 
expressed in the Transportation 
Act of 1920. 

Joint Fai:ili<>vs 

Securities owned in carrier com- 
panies connected with the road, 
some of whose facilities are used 
in common by the Chesapeake and 
Ohio and other railroads, are car- 
ried on the books at cost of S 14,- 
505,095. The facilities of these 
companies are essential to C & O 
operation. Among the securities 
in this classification are invest- 



ments in the Cincinnati Union 
Tetminal Company, the Norfolk 
Terminal and Transportation 
Company, the Covington- and Cin- 
cinnati Elevated Railroad and 
Transfer and Bridge Company, and 
the Nicholas, Fayette & Greenbrier 
Railroad Company. 

■ Carrier fiit'Gstments 

The Company has investments 
in a number of non-carrier com- 
panies, of which four are wholly 
owned. The most important of 
the wholly owned companies are 
Western Pocahontas Corporation 
and Western Pocahontas Fuel 
Company. 

Both of these companies them- 
selves own securities, lists of which 
appear on page 44. Western Po- 
cahontas Corporation's security in- 
vestments are carried on its books 
at 52,975,416, and Western Poca- 
hontas Fuel Company's security 
investments are carried at 596,594. 
In addition to their security hold- 
ings, both companies own exten- 
sive developed and undeveloped 
coal lands. Neither company is 
engaged in the mining of coal, but 
both have leased certain of their 
coal lands to mine operators. 

Interest in Other 
Iroads 

Chesapeake and Ohio owns an 
interest in four other railroads not 
directly connected with its opera- 
tions. These railroads are the New 
York, Chicago and St. Louis Rail- 
road Company (known as the 
Nickel Plate), the Pere Marquette 

[31 I 



Railway Company, the Wheeling 
and Lake Erie Railway Company, 
and the Erie Railroad Company. 

Chesapeake and Ohio has con- 
trol of the Nickel Plate and Pere 
Marquette through ownership of 
majorities of their common stock. 
The company owns 69 per cent of 
Pere Marquette's common stock, 
57 per cent of Nickel Plate's com- 
mon stock, a minority interest in 
Pere Marquette preferred stock, 
and certain bonds of both com- 
panies. The combined holdings of 
Chesapeake and Ohio and Nickel 
Plate in Certificates of Deposit for 
capital stock of the Wheeling and 
Lake Etie represent a total of more 
than two-thirds of all the outstand- 
ing stocks of that railroad. The 
voting rights of these shares are 
held by a trustee under an agree- 
ment approved by the Interstate 
Commerce Commission. Invest- 
ment in the Erie consists of approx- 
imately 2 per cent of its common 
stock and warrants to purchase an 
additional amount of common 
stock. 

' gidmries Reduce Debt 

Since 1937 Nickel Plate's debt 
has been reduced S4 1 ,600,000 and 
irs interest charges $2,700,000 or 
37 per cent. Duting the same pe- 
riod Pere Marquette's debt has 
been reduced $14,200,000 and its 
interest charges $1,420,000 or 44 
per cent. It was but a very short 
time ago that Nickel Plate and 
Pere Marquette were referred to as 
marginal roads. Today their credit 
is higher than that of several great 
roads.. 



Courtesy, Chesapeake & Ohio Railway Company 



Fi g . 176 



297 



■to 



INDEX 



Abbott Laboratories, graphs, 132, 157 
Accident: 

information. 273 
prevention, excerpt, 144 
Accounts receivable: 

checklist for commentary, 103-104 
current and deferred payment, graph. 

129 
losses on. table. 114 
Acquisition of companies, checklist for 

commentary, 104 
Activities, employee, handling, 271 

checklist for commentary. 134-135 
Adam Hat Stores, Inc., chart, 63 
Added value, explained, 72 
Adjustments for comparisons, 34-35 
Advertising: 

annual report, 286-287 
. reporting on. 166-175 

checklist for commentary, 167 
graphs, 168-174 
Agency, preparation of report by, 3-5 
Alaska Airlines, graph, 64 
Allegheny Ludlum Reports, 267 
Allegheny Ludlum Steel Corporation, 38 
after-strike campaign, 251-252. 257 
excerpt. 61 
graph, 173 

survey of opinion. 213. 214. 215-216 
Allied Chemical & Dye Corporation, ex- 
cerpt, 75 
Allied Stores Corporation: 
excerpt, 119 
graphs, 129, 145 
Alphabetical index of report, 36-37 
Alpha Portland Cement Company, ex- 
cerpt, 76 
American Box Board Company, theme, 

279 
American Colortvpe Company, graph. 

124 
American Economic Foundation, pub- 
lication of, 181 
American Encaustic Tiling Co., report of 

stockholders' meeting, 30 
American Federationist, quote from, 257 
American Home Products Corporation: 
excerpt. 120 
graph. 70 
highlight, 38 

report on improvements, 26 
stockholder relations, 229, 232 
Yearbook, 36, 37 
American Iron and Steel Institute, steel 

facts, 15 
American Locomotive Company, excerpt, 

22 
American Machine & Foundry Co., ex- 
cerpt, 49 



American Management Association, 

stockholder survey, 221 
American Rolling Mill Company, The: 

graph, 52, 124. 208 

report to stockholders, 269 
American Telephone & Telegraph Co.: 

excerpt, 162 

graph, 163 

stockholder relations, 229, 245 
Analytical data, comparative and, 33-34 
Anderson v. Mt. Clemens Pottery Co., 27 
Anniversary number, annual report, 19- 

20 
Annual meeting of stockholders: 

films at, 238-241 

notice of, in report, 29-30 

regional, 236 

reports of action at, 241 
Annual report: 

anniversary number, 19-20 

attractive, what it can do, 2 

condensed editions. 12-13 

contents of (see Contents of annual 
report) 

film versions of, 238-241 

how readers use, 16 

improving, progress in, 1-2 

livening, 199-212 (see also Livening up 
annual report) 

mailing, 10-11 
economies in. 12 

modernized, 1-3 

narrative portion of, 19 

not a prospectus, 30-31 

plan of, and public relations, 279 

popularized editions, 12-13 

preparing, 1-13 (see also Preparing 
annual report) 

progress chart and tabulation, 2 

public misconceptions affecting, 14-15 
(see also Misconceptions) 

surveys of opinions on, 213-228 (see 
also Surveys of opinions) 

television version, 233, 238 

to employees (see Employees: annual 
reports to) 

to whom sent, 16 

winning public goodwill through, 278- 
288 (See also Public relations) 

writing (see Writing report) 
Applied General Statistics, 204, 206 
"Appraisal of the Steel Industry, An," 

250 
Appreciation, expressions of, 29 
Arithmetic line charts, 206 
Arm-co-operator, excerpt, 269 
Armour and Company: 

excerpt, 61, 120 

income, how divided, table, 74 
Armstrong Cork Company: 

booklet, 245 



Armstrong Cork Company (Cont.): 

excerpts, 142, 144 

report to employees, 255 
Artists, 5 

Art of Plain Talk, The, 194 
Art of Useful Writing, The, 197 
Association of National Advertisers, 230, 

282 
Assets: 

checklist for reporting on, 103 

current (see Current assets) 

excerpts explaining, 118-121 

graphs, 123-129 
Assistant treasurer, responsibility for re- 
port. 3 
At-a-glance restdts: 

charts and graphs. 40, 43-46 

statistical summaries, 40-41 

year's operations, highlights, 38-39 
ATF, Incorporated: 

directory, 21 

plans for future, in report, 28-29 
Atlas Powder Company, excerpts, 42, 252 
Auditor's report, 35-36 
Awards for reports, 1 

B 

Balance sheet: 

at a glance, graph, 122 

comparative, 34 

deficiencies of, in reporting practices, 

32 
explanation of, 1 19 
graphs and charts, 122-124 
perplexing features of, 177 
simplified, examples, 183-188 

comments on, 178-179 
simplifying, ways of, 177-178 
statistical tables for items, 107-114 
capitalization. 111 
cash, 107 
funded debt, 115 
funds, 111 
inventories, 107 
investments, 1 10 
property, tangible and intangible, 

108-110 
reserves, 111-114 (see also Reserves: 

statistical tables) 
securities owned, 110-111 
sinking funds, 1 11 
working capital, 106 
Balasny, Raymond L„ 223 
Balasny survey of opinion, 213, 223-224 
Baltimore & Ohio Railroad Company: 
graphs, 87, 159 

report to employees, 258, 259 
Bar-charts, 204, 206-207 
Barrons, 202 

Barton, Bruce, report written by, 198 
Behind the Annual Report, film, 240 

299 



INDEX 



Beldeneius, excerpt, 272 
Belden Manufacturing Company, ex- 
cerpt, 272 
Bell, James F., 231-232, 236, 240 
Bendix Aviation Corporation, excerpt. 

20 
Benefits, employee: 

checklist for commentary, 135 

excerpts, 144 

handling, 271 
Bids on printing, 9 
Binding, of report, 201 
Blackie, \V., 182 
Blaw-Knox Co., 38 

chart, 156 
Blueprint proof, 10 
Bonds outstanding: 

graphs, 124, 129-131 

tables, 111-115 
Booklets: 

company, 19 

and institutional, 245-246 

illustrated, 18 
Book rate, mailing, 10-11 
Book value of stock: 

checklist, 105 

graph, 133 
Borden Company, The: 

form letters, 283, 284 

magazine, 245 

maps, 204 

survey of opinion, 213, 217-218 
Borrowing: 

checklist for commentary, 104 

checklist for graphs, 105 

graphs, 122, 123, 124, 129-131 

statistics, 114-115 
Braniff Airways, Incorporated, graph, 89 
Bridgeport Brass Company: 

comparison with industry and nation, 
209 

graph, 67, 127 

in Gates survey, 221 
Bridgeport Glass Company, graphs, 67, 

76 
Bristol-Myers Company: 

excerpt, 143 

gift to stockholders, 246 

special message to stockholders, 23 
Brown & Bigelow, 1 

excerpt, 140-141 
Burnett, Verne, 230, 236, 282 
Burroughs Adding Machine Company, 

graph, 54 
Business, volume of (see Volume of busi- 
ness) 
By-laws, and submission of report, 17 



Calendar for preparing report, 5-8 
California Cooperative Crop Service, 210 
Calumet and Hecla Consolidated Copper 

Company, graph, 148 
Canada Dry Ginger Ale, Incorporated, 

38 
Capital (see also Net worths- 
expenditures, excess of, over depre- 
ciation, depletion, amortization, 
and retirements, chart, 128 

300 



Capital (Conl.): 

invested, ratio of to net sales, graph, 
97. 
rate of return on, graph, 101 

misunderstanding of, 177 

ratios, 35 

senior, compared with working capi- 
tal, graph, 124 

statistics, 114, 115 

turnover, excerpt, 61 

working (see Working capital) 
Capitalism (see Free enterprise) 
Capitalization: 

checklist for charts, 105 

checklist for commentary, 101 

graphs, 122. 123, 121, 127, 128, 129, 
131 

funded debt, 115 

reduction of capital, 115 

statistical tables, 114-115 

stocks, bonds, notes outstanding, 114 

summary of capital structure and div- 
idend record, 1 11 
Capital stock: 

checklist for commentary, 101 

graphs, 124, 129, 131-133 

ideas for charts and graphs, 105 

structure, checklist, 104 
Captions, in financial statement, 176 
Carrier Corporation, graph, 70 
Carter, W. C, 24 
Cartoons, 211 
Cash, 178 

graphs, 126, 127 

statistical tables, 107 
Catalogue rate, mailing, 10-11 
Caterpillar Tractor Co., 1 

community relations, 282 

comparing with industry and nation, 
209 

elimination of "surplus," 182 

excerpts, 49, 140 

graphs, 53, 97, 149, 165 

radio publicity, 287 

simplified balance sheet, 178-179 
Celanese Corporation of America: 

excerpts, 95, 167 

graphs, 68, 156 
Census of Manufactures, added value 

explained, 72 
Central Power and Light Company, 

chart, 66 
Century Ribbon Mills, cover, 201 
Chairman of board, responsibility for re- 
port, 3 
Champion Paper and Fibre Company: 

distribution of report, 282 

getting employee suggestions, 276 
Charting comparisons: 

by industry and nation, 209-210 

by percentages, 209 

on per unit basis, 209 

trends, 208 

unlike units, 208-209 

with index numbers, 209 
Charts (see Graphs) 
Checklists: 

charts and graphs (see Graphs: ideas 
for charting, checklist) 



Checklists (Con I.): 

comments in report on: 
advertising, 167 
assets, 103 

capital structure, 104 
depreciation, 73-74 
distribution of product, 167 
dividends, 91 
earnings, 90-91 
employee relations, 134-135 
expansion, 104 
financial condition, 103-105 
fixed assets, 104 
funded debt, 105 
government relations, 27 
materials and supplies, 73 
operating expenses, 73 
ownership, 160 
production, 47 
products, 166 

public-relations activities, 280-281 
research, 166 
reserves, 104 
sales, 57 
taxes, 153 

volume of business and sales, 57 
wages, 134-135 
working capital, 103 
directory, 21 

distribution of report, 281 
Cherry-Burrell Corp., graphs, 56, 126 
Chesapeake and Ohio Railway Com- 
pany, 1 
graph, 147 

page from report, 297 
Cincinnati Gas and Electric Company, 

excerpt, 280 
Circularizing key executives, 9 
Cleveland Graphite Bronze Company, 

excerpt, 120 
Coca-Cola Company: 
graph, 61 

notice of annual meeting, 29-30 
Coleman Company, Inc., The, graph, 150 
Color: 

in charts and graphs, 208 
in report, 200 
Columbia Gas & Electric Corporation, 

graph, 69, 210 
Community: 

and company, co-operation, 281 
distributing report in, 282 
Company, description of, 20 
Comparative statements, 32-34 

analytical data, 33-34 
Comparisons: 

charting (see Charting comparisons) 
to bring out changes in values, 76 
Compensation (see Wages and salaries) 
Condensed editions, 12-13 
Consolidated Edison Company of New 
York, Inc.: 
graph, 64 

page from report, 295 
stockholder relations, 229, 230, 244, 

245, 249 
survey of opinions, 225-226 
Consolidated Natural Gas Company, 
graph, 68 



INDEX 



Contents of annual report, 16-37 

anniversary number, 19-20 

appreciation, expressions of, 29 

auditor's report, 35-36 

checklists (see Checklists) 

charts and graphs (see Graphs) 

cost of doing business, 71-89 

death notices in, 22 

directory, 21 

distribution of sales dollar, 71-89 

dividends. 90-102 

educational matter, 29, 281 

emplovee relations, 134-152 

financial condition, 103-133 

financial statements, 31-36 (see also 
Financial statements) 

general plan, 17-18 

government relations. 27 

history of corporation, 19-20 

improvements in report, 26-27 

index, 36-37 

litigation, 27-28 

management personnel in, 21-22 

narrative, 19 

notice of annual meeting, 29-30 

outlook, 28 

outside factors, 28 

ownership data, 160-165 

philosophy of company, 23-25 

plans for future, 28-29 

policies, 22-23, 25-26 
and principles, 22-23, 24-25 

production, 47-56 (see also Produc- 
tion, reporting on) 

products, 166-175 

research, 166-175 

results at a glance, 38-46 

sales. 57-70 

special message, 23 

statements influenced by Securities 
acts, 30-31 

statistics (see Statistics) 

subjects of interest to stockholders, 
213, 215, 217, 219, 221, 223 

subjects treated, 18-19 

table of contents, 36-37 

taxes, 153-159 

what company does, 20-21 
Continental Can Company, Inc., map, 

203 
Continental Motors Corporation, graph, 

68 
Controller, responsibility for report, 3 
Controllership Foundation, Inc., surveys, 

14, 15, 227 
Copperweld Steel Company: 

excerpt, 56 

graph, 101, 143 
Copyrights, checklist, 104 
Corning Glass Works, graphs, 69, 210 
Corporations: 

procedure of, outside agency, 5 

public opinion about, 15 
Corrections, making, 10 
Cost-of-living: 

graphs, 69, 151, 210 

table, 137 
Costs: 

charts and graphs (see Graphs: costs) 



Costs (Cont.): 

of modern reports, stockholders on, 
228 

of outside agency, 5 

of preparation, cutting, 11-12 

operating (see Operating costs) 

printing, 4 

stockholders' contributions and, 75 
Counselor, annual report of, 4, 5 
Cover of report: 

essentials of, 201 

ideas for. 201-202 

inside of, using, 202 
Cowden, D. J., 204, 206, 210 
Credit cards for stockholders. 246 
Croxton, F. E., 204, 206, 207, 210 
Cudahy Packing Company, The: 

excerpts, 143, 168 

graphs, 124, 126 
Current assets, 178 

and current liabilities. 124 

checklist for commentary, 103 

graphs, 126 
Current liabilities: 

and current assets, 124 

checklist for commentary, 103 
"Current Practice in Disclosure of In- 
formation in Financial State- 
ments," 32 
Customers: 

charts showing, 173, 175 

maps showing, 203 

service to, excerpt. 169 



Data, gathering, 9 

Date, report release, 5-6 

Dean, Arthur H., 30 

Death notices, in annual report, 22 

Debt: 

funded, table, 115 
graphs, 130-131 

interest charges, 130 

long-term debt, working capital and, 

124 
reducing funded debt, 130 
long-term, changes in, 104 
Decreases, showing in financial state- 
ments, 33 
Delta Airlines, Inc., chart, 43 
Democracy demonstrated, excerpt, 140- 

141 
Depreciation: 

avoiding term, 182 
charts showing, 128, 129 
checklist for commentary, 73-74 
reserves for, table, 111, 112 
Development (see Expansion) 
Director of Public Relations: 

responsibility for public relations, 230 
responsibility for report, 3 
Directory, in annual report, 21 
Discussions, preliminary, 9 
Distribution: 

of product, checklist, 167 ' 
of report: 

to employees, 252 
to public, 281 
Diversification, advantages of, excerpt, 61 



Dividend enclosures, 234 
folders, ideas for, 235 
qualities of, 235 
types of, 234-235 
Dividends: 

checklist for commentary, 91 
earnings and, 90-102 

charts and graphs, 45, 91, 96, 99, 100, 
102 
graphs: 

annual wages, net income, and, 100 
declared, and net income, 100 
earnings and, 45, 91, 96, 99, 100, 102 
per share of common stock, 102 
wages and salaries compared with, 
99 
highlights, 39, 40 
ideas for graphs, 91 
statistical data, 91-93 
Division of income, employees' report, 

258-262 
Dollar sales (see Sales: dollar) 
Dominion Stores, Ltd., excerpts, 17, 161- 

162 
Douglas, W. L„ Shoe Co., graph, 149 
Dow -Jones Industrial Average, graph, 98 
Drafting report, 9-10 
Drawings, 211 

Dummy for discussion guidance, 9 
Dun & Bradstreet, Inc., 35 
Duplan Corporation, graph, 145 
Du Pont, E. I., de Nemours & Co.: 
excerpt, 143 
graph, 148 
Duquesne Brewing Company, graph, 78 



Earning power, stability of, graph, 98 
Earnings, company (for employee earn- 
ings see Wages and salaries): 
and cost of living, table, 137 
and dividends, 90-102 

charting comparisons with industry, 
210 
checklist for commentary, 90-91 
division of, in employees' report, 258- 

262 
graphs, 45, 91, 96-102, 155-159 
highlights, 38, 40 
ideas for charts, 91 
importance of, excerpt, 266 
influence on report style, 16 
interim, statement, 233 
not idle cash, excerpt, 94 
statistical data, 91-93 
treatment of, in report, 17 
Eastman Kodak Company, excerpt, 211 
Economics of free enterprise, excerpts 
dealing with, 24, 25, 28, 42, 49, 
60, 94, 95, 121, 140, 265, 274 
Economies of report preparation, 11-12 
Educational matter in report, 29, 281 
Electric Boat Company: 
business-reply card, 285 
letter of transmittal, 283 
policy, statement of, 25 
Emerson Radio & Phonograph Corpora- 
tion, style, 292 
Employee relations, 134-152 

301 



INDEX 



Employee relations (Coul.): 
benefits, excerpts, 1 13 
checklist for commentary, 13-1-135 
democracy and, excerpt, 140-141 
informing employees of problems and 

policies, 143 
junior stall positions, selection for, 143 
management's aim and, excerpt, 1 10 

141 
plant shut-downs: 

excerpt, 143 

graph, 56 
retirement plan, excerpt, I II 
safety and accident prevention: 

excerpt, 144 

reporting on, 273 
statistical tables, 136-139 
unions, 111-142 
vacations, excerpt, 143 
wages and salaries, 142-143 (see also 
Wages and salaries) 
Employees: 

annual reports to, 250-277 

accident information, 273 

activities, 271 

benefits, 271 

criticisms of, 253, 256-257 

development of business, plans for, 
273 

distribution of, 252 

division of income, 258, 260. 262, 
263 

employee suggestions for, 275-276 

explaining stockholders. 269-271 

facts and figures, lively, 258 

"free enterprise'' in, 274-275 

general plan of, 258 

handling of. 252 

little-company statement, 268 

managerial compensation, explain- 
ing, 273 

objectives of, 253-254 

opportunity, 271-273 

profits: 

in payroll terms. 267-268 
necessity of, 265-266 

reasons for, 250 

recognition, 271-273 

same as stockholders' report or not. 
252, 276-277 

surplus, explaining, 259, 260, 264 
attitudes of, management should con- 
sider, 257-258 
compensation (see Wages and salaries) 
information: 

from employers, 251-252 

from government, 250-251 

from unions, 251 

sources of, 250 
inviting, to ask questions, 276 
primary interests of, 253, 255-256 
surveys of opinion, 250 
union (see Unions) 
Employment: 

charts and graphs, 145-152 
checklist for commentary, 134 
excerpts, 140-144 
highlights, 39, 40 
ideas for charts, 135 

302 



Employment (Cont.): 

reporting on, 134-152 

statistics, 136-139 
Envelopes for report. 201 
Equipment, additions to, graph, 128 
Excerpts from annual reports: 

from general summaries, 41 

on costs, 75-70 

on employee relations, 1 10-143 

on employment, 140-113 

on financial condition, 118-121 

on free enterprise, 21, 25, 28, 42, 49, 
60, 94, 95, 121, 140, 265, 271 

on ownership, 75, 161-162, 269-271 

on production, 19-51, 167-168 

on profits, 94-95 

on volume of business and prices, 60-61 

on wages, 140-143 

showing results at a glance, 38-39 

to employees, 254, 256, 259-276 

working capital, 119, 120 
Executives (see also Management): 

compensation, 134, 112-113, 273 
chart, 148 
table, 138 

directory of, 21 

key, circularizing, 9 

telling about, 21, 22, 273 
Expansion: 

charts and graphs, 126, 128 

checklist for commentary, 104 

excerpt, 120-121 

statistics, 108. 109, 116-118 
Expenses (see Costs) 
Extension, development and, table, 113 



Factory, 250 

Facts About the Bell System, 245 
Facts and figures, public's opinion of, 14 
Falstaff Brewing Corporation, graph, 62 
Fansteel Metallurgical, stockholders, 229 
Federal Reserve Board Index, 209 
Federal Social Security, reporting on, 271 
Federated Department Stores, Inc., 

graph, 209-210 
Figures: 

facts and, public opinion of, 14 

not well indicated in charts, 210 

that tell story, 197-198 
File: 

size of report suitable for, 199 

year-round, 11 
Film versions, annual reports, 238-241 

examples of, 239-241 

producer, importance of, 238-239 

production procedure, 239 

showing, 239 

subjects, selection of, 239 

televised, 238 
Financial condition, 103-133 

charts and graphs, 122-133 

checklist for commentary, 103-105 

excerpts from, 118-121 

ideas for charts, 105 

statistical tables, 105-118 

balance sheet items, 107-114 (see 
also Balance sheet: statistical 
tables) 



Financial condition (Cont.): 
statistical tables (Cont.): 
capitalization, 1 11-1 15 
progress, 116-118 
working capital, 106 
Financial statements, 31-36, 176-193 
analytical per cents in, 33 
annual report and, 17 
avoiding depreciation; reserve for de- 
preciation, 182 
avoiding surplus, 182 
balance sheet (see Balance sheet) 
better, ideas for, 32 
clarifying: 

advanced methods, 177 
old methods, 176-177 
comments on, 176 
comparative, 32-33 

comparative and analytical data, 33-34 
consolidated, 34 

figures, making them more compre- 
hensible, 181-182 
greater disclosure needed, 31 
highlights, 39 

ideas for better reporting, 32-33 
income statement (see Income: state- 
ments) 
in employees' reports, 260-268 
making them truly comparable, 34-35 
making them understandable, 176-193 
operating report, functional, 181 
practices reflected in, 118-119 
ratios in, 33-34 

helpful, 35 
rules for presenting, 31-32 
schedules in, 176-177 
simplified, samples of, 183-193 
taxes in, treatment of. 182-183 
"Financial Statements for Corporate An- 
nual Reports," 182 
Financial World, 1, 223, 233 
Financing, checklist for commentary, 

104 
Fiscal year in review, 43 
Fitzgerald, Thomas J., 72-73 
Flesch, Dr. Rudolf, 194 
Flintkote Company, The, excerpt, 25 
Floor space, comparison of, graph, 126 
Florida Power Corporation, 18, 65 
graph, 65 

presentation of year's events, 18 
Footnotes, in financial statement, 176 
Foreign investment, table. 111 
Fortune, 1 
Foulke, Roy A., 35 
Foundation for Economic Education, 

Inc., 14 
Franklin Square National Bank, style, 

289 
Free enterprise: 

employee attitudes affected by report, 

15, 278 
excerpts dealing with, 24, 25. 28, 42, 
49, 60, 94, 95, 121, 140, 265, 
274 
in reports to employees, 274-275 
public attitudes, 15, 278 
stockholders' support of, 229 
Freeport Sulphur Company, booklet, 18 



INDEX 



Fruehaiif Trailer Company, excerpt, 266- 

267 
Funded debt: 

checklist for commentary, 104 

graphs. 130-131 

table, 115 
Funds: 

checklist for commentary, 104 

statistics. Ill 
Future, reporting on, 28-29 

of employees, 256 



Gains, nonoperating, extraneous, and 
nonrecurring, treatment of, 179- 
180 
Gair. Robert. Compam. Inc., graph. 

152 
Gates. Ralph, survey, 213. 221 
Ga\lord Container Corporation, coyer, 

201 
General Analine & Film Corporation: 

graphs, 128, 146 
General Electric Compam, graph, 102 
General Finance Corporation, graph, 152 
General Foods Corporation: 
coyer. 201 

in Gates survey, 221 
magazine, 244, 245 
personal poll of women stockholders, 

220-221 
salutation, 280 

statement of principles, 24-25 
survey of opinion, 213, 214, 219-220 
General Mills, Inc.: 
contents of report. 17 
excerpt, 266 
film, 239-240 
gifts, 246 
graph, 99 

statement of policy, 22 
stockholder relations, 231, 236-237 
General Motors Corporation: 
comparing performance, 210 
excerpts, 60-61, 118-119 
graphs, 145, 163 
highlight, 38 
page from report, 296 
special message, 23 
stockholder relations, 229 
General Public Utilities Corporation, re- 
port to stockholders, 270 
General Shoe Corporation, cover, 201 
George Weston Limited, graph, 126 
Georgia Power Company, 67, 

graph, 210 
Gerber Products Company, improve- 
ments in report, 26 
Gifts to stockholders, 246 
Goodrich, B. F., Company, booklet, 18 
Goodwill: 

checklist for commentary, 104 
public, through annual reports, 278- 

288 (see also Public relations) 
valuation of, excerpt, 121 
Goodyear Tire & Rubber Company, The: 
employee benefits, 144 
graph. 84-85, 172 
Government, relations with, 27 



Government Statistics for Business Use. 

210 
"Graphic Facts," 26-27 
Graphs: 

accounts receivable, 129 
aiding reader to interpret, 211 
amortization, 128, 156 
arithmetic line. 206 
assets, 122-127 
at-a-glance, 43-46 
balance sheet: 
at-a-glance. 122 
illustrated, 123 
book value of stock, 133 
borrowed capital, 129-131 
capacity and sales, 66 
capital: 

borrowed. 129 

compared with working capital, 125 
disposition of, 127 
expenditures, excess over deprecia- 
tion, depletion, amortization, 
and retirements, 128 
capital stock outstanding, 124, 129, 

131-133 
checklists for (see Graphs: ideas for 

charting, checklists) 
choosing type of, 208 
comparisons (see Charting compari- 
sons) 
cost of living: 
and prices, 69 
and wages, 151 
costs and prices, 77 

costs of materials, wages, taxes, etc., 76 
current assets, 126 

and current liabilities, 124, 125 
and net sales, 126 
current liabilities, current assets and, 

124, 125 
debt: 

funded, reducing, 130 
interest charges and, 130 
depreciation, 128, 129 
distribution of sales dollars, 78-89 
dividends, 96, 98, 99, 100, 102 
earnings: 

and dividends, 45, 91, 96-102 
before and after taxes, 155-159 
employees: 
benefits, 152 
length of service of, 152 
promotions, 272 
relation to stockholders, 165 
wages of, 145-152 
expansion, 126, 128 
expenditures: 
capital, 128 

for machinery and equipment, 129 
financial condition, 105, 122-133 
funded debt, 130-131 
highlights of year's operations, 40 
ideas for charting, checklist: 
assets, 105 

capital structure, 105 
earnings and dividends, 91 
employment, 135 
fixed assets, 105 
funded debt, 105 



Graphs (Cont.): 

ideas for charting, checklist (Cont.): 
man-hours worked, 53 
net worth, 105 
ownership, 160 
production, 47 
sales, 57 
stock value, 105 
taxes, 153 
wages, 135-136 
working capital, 105 
illustration-chart combinations, 208 
interest and debt, 130 
investment, 128 

percent of sales, 63 
per worker, 150, 152 
long-term debt, working capital and, 

124 
man-hours worked and industrial pro- 
duction, 53 
mortgage, general, changed from third 

to first lien, 131 
net worth, 129 

and working capital, 125 
organization, 19, 21 
ownership, 160, 162-165 

and employees, 165 
payrolls (see Graphs: wages) 
plant shut-downs, 56 
prices, 68, 69 

relation to profits. 98 
relation to sales, 63, 67 
production, 45, 53-56, 64 

and payrolls, 145, 118, I 19 
profits, 96-102 

before and after taxes, 155-159 
railway, 266 
progress of annual report, 2 
railway profits, 266 
research, 173 
return on capital, 101 
revenues, 64, 66 
and expenses, 77 
distribution of, 78-89 
relation to taxes, 159 
salaries, 145-152 
sales, 45, 54, 62-70 
compared with: 
assets, 129 
income, 97 
net fixed assets, 68 
production, 52, 54 
taxes, 157 
contribution of divisions, 70 
orders booked, 70 
sales dollar divided, 78-89 
shipments, 67 
stock, capital: 
book value, 133 
outstanding, 129, 131 
price movement, 132 
subjects treated in, 204-206 
surplus, 129 
taxes, 99, 155-159 
ideas for, 153 

relation to compensation, 148, 155 
use of sales dollar, 71 
users of products, 173, 175 
volume of business, 57-58 

303 



INDEX 



Graphs (Cont.): 

wages, 99, 100, 101, 115-152 
relation to dividends, 99 
relation to net income dollar, 98 
relation to profits, 97, 98 
relation to taxes, 155 
why some fail, 210-21 1 
working capital, 45, 125 
and long-term debt. 121 
compared with senior capital, 124 
net worth and, 125 
Graver, Paul J., 19 
Gray Manufacturing Company, graph, 

1(54 
Great Northern Railway Company, 

graph, 266 
Group insurance: 
hospitalization, 144 
table, 139 
Green, William, 257 

Greyhound Corporation, The, graph, 86 
Guaranty Trust Company, comparison 
of performance, 209 

H 

Haloid Company, winning goodwill, 280 
Hauser, Philip M., 210 
Headings, in annual report, 200 
Herold, Don, 196-197, 258 
Hollander, A., & Son, Inc., cover, 201 
Highlights, examples of, 38-40 
History of company, 19-20 
Horizons, 245 

Hospitalization, group, 144 
Houdaille-Hershey Corporation, graph, 

125 
Houser Associates, employee survey, 250 
"How General Mills Grew Last Year," 17 
Humble Oil Refining Company, graph, 

98 
Hunt Foods, Inc.: 

comparison of performance, 210 

graph, 77 
Hydraulic Press Manufacturing Com- 
pany, graph, 133 

I 

Illustrated booklets, 18 
Illustration-chart combinations, 208 
Illustrations in report, 202 (see also 

Graphs) 
Imperial Oil Limited: 
comparison of performance, 210 
graph, 69 
Income (see Earnings): 
statements: 

comparative, 34 
deficiencies in, 32 
in employees' reports, 258-269 
perplexing features of, 179 
short form, usual, 180-181 
simplified, examples, 188-193 
simplifying, ways of, 180 
tax, Federal personal, 1946, effect 
of, on employee compensation, 
chart, 148 
Increase, showing in financial statements, 

33 
Indebtedness (see Debt) 

304 



Independent agency: 

mailing by, 11 

preparation of report by, 3-5 

surveys of opinion, 213 
Index, alphabetical, in report, 36-37 
Index numbers, charting comparisons 

with, 209 
Indexes, production, 53 
Industry: 

and nation, charting comparisons, 209- 
210 

type of, 16 
Inland Steel Company: 

comparison of performance, 210 

graphs. 51, 70, 151 
Institutional booklets, 245-246 
Interest charges, and debt, graph, 130 
Interim reports, 233 

distribution of, 234 

financial information in, 233-234 

preparation of, 234 

types of, 233 
International Cellucotton Products Com- 
pany, excerpt, 120-121 
International Harvester Company, 

graphs, 101, 164 
International Minerals & Chemical Cor- 
poration: 

graph, 101 

page from report, 290 
Interview, personal, poll, 214 
Inventories: 

checklist for commentary, 103 

in reports on stockholders' meetings, 
241-242 

statistical tables, 107 

valuation of, on last-in first-out basis, 
excerpt, 120 
Inventory ratios, 35 
Investments: 

checklist for commentary, 104 

graphs, 63, 128, 150, 152 



James, Marquis, 198 
Jewel Tea Co., Inc.: 

film, 240-241 

winning goodwill, 280 
Johns-Manville Corporation, magazine, 

245 
Joint group, responsibility for report, 

3 
Jones, Thomas R., 29 
Journal of Accountancy, 32, 35 
Journal of American Statistical Associa- 
tion, 207 
Journal of Capital, 230, 282 
Joy Manufacturing Company: 

graphs, 260, 261, 263 

on capitalist system; 270-271 
Junior stall positions, selection for, 143 

K 

Kaiser-Frazer Corporation, excerpt, 49- 

51, 273 
Kellogg, M. W., Company, booklet, 18 
Kennecott Copper Corporation, graph, 

164 
Key executives, circularizing, 9 



Keystone Steel & Wire Co., comparison 
of performance, 210 



Labeling, incomplete in charts, 210-211 
Labor relations (see Employment) 
Labor unions (see Unions) 
La Plante-Choate Manufacturing Co., 

Inc., graph, 170 
Leading, in annual report, 200 
Legibility (see Readability) 
Lehigh Coal 8c Navigation Company, 

public-relations theme, 279 
Lehigh Portland Cement Company, 

graph, 127 
Leonard, William R., 210 
Letters to stockholders: 

president's letter, 17 

regret letters, 247-248 

welcome letters, 246-247 
qualities of, 247 

who increase their holdings, 247 
Liabilities: 

current (see Current liabilities) 

in balance sheet, 123 
Line charts, 204, 206 

arithmetic, 206 

semi-logarithmic, 206 
Link, Dr. Henry C, 15 
Link-Belt Company: 

comparing with industry and nation, 
209 

graphs, 62, 81 

statement of principles, 24 
Litigation, in annual report, 27-28 
Little-company statement, 268 
Livening up annual report, 199-212 (see 
also Readability) 

binding, 201 

charts and graphs, 204-211 (see 
Graphs) 

color in, 200 

cover, 201-202 (see also Cover of re- 
port 

elements of appealing report, 199 

envelopes, 201 

graphs, 204-211 (see also Graphs) 

headings, 200 

illustrations, 202 

leading, 200 

maps, 203-204 

odd sizes and forms, 199-200 

pages, number of, 200 

photographs, 202-203 

pictorial presentations, 204 

printing, 201 

size, selecting, 199 

statistical data, 211-212 

symbols, use of, 207 

type faces, 200 
Living, cost of (see Cost of living) 
Losses: 

extraneous, nonrecurring, 180 

item, explaining, excerpt, 95 
Louisville Gas and Electric Company, 

graph, 82 
Ludwig Baumann & Company, graph, 

80 
Luhnow, Christian C, 19 



INDEX 



M 

McCall Corporation, in Gates survey, 

221 
Macfadden Publications, Inc.: 
educational matter in report, 29 
excerpt, 49 
poll of opinion, 250 
McKesson & Robbins Incorporated: 
gifts to stockholders, 246 
graph, 146, 272 
McKinsev S: Co.. employee survey, 

250 
McMurrv. Robert X., employee survey, 

250 
Magazines, stockholder, 244-245 
Mailing: 
rates. 10-11 
report, 10-11 

bv outside organization. 11 
economies in. 11 
statement of, 1 1 
survey, 214 
Mailings to stockholders. 246 
Maintenance: 
charts, 128, 129 
reserves, statistics, 112-113 
Make-up of annual report, influences, 16 
Mallory Life, 274 

Mallory, P. R., & Co.. Inc., free enter- 
prise in report, 274-275 
Management (see also Executives): 
aim of, for employees, 140-141 
and stockholders, bringing together, 
229-249 (see also Stockholder 
relations) 
basic job of, 250 

compensation of, 134, 142-143, 273 
chart, 148 
table, 138 
directory of, 21 
local, publicity kit for, 288 
personnel, telling about, 21-22 
relations with stockholders (see Stock- 
holder relations) 
should consider labor's attitude, 257- 

258 
support of, 230 
Maps, in annual report, 203-204 
Marketing of products, 166-175 
Markets, location of, 203 
Material, gathering, 9 
Materials and supplies, checklist, 73 
Meetings of stockholders: 
reports of, 241 
notice of, 29-30 
Mellon, M. K., & Co., survey, 226-227 
Merit awards, 1 
Metered mail, 11 

Metropolitan Life Insurance Company: 
figures in report, 197, 198 
radio publicity, 287 
Michigan Consolidated Gas Company, 

graph, 171 
Michigan Steel Tube Products Company, 

graph, 155 
Minutes of meetings, 241-242 
Misconceptions: 
of employees, 250 



Misconceptions (Cont.): 
of profits, 14 

excerpts relating to, 94, 265, 266 
public, affecting anual report, 14-15 
Missouri-Kansas-Texas Railroad Com- 
pany, award, 1 
Modernizing report: 

advice from companies, 2-3 
reasons for, 1 
Monsanto Chemical Company, 
comparison of performance, 209 
graph, 98 

pictorial report, 243-244 
Monthly report, from quarterly state- 
ment to, 234 
Mortgage, general, changed from third 

to first lien, chart, 131 
Motion-picture presentation, annual re- 
port, 238-241 (see also Film ver- 
sions, annual reports) 
Murray Corporation of America, The: 
building goodwill, 121 
excerpts, 119, 140 

N 

Narrative. 19 

checklists for (see Checklists) 
making it readable, 194-198 
on use of sales dollar, 71-72 
readability of, 194-198 (see also Read- 
ability) 
subjects covered in, 18 
Nash-Kelvinator Corporation, graphs, 55, 

155 
Nation, industry and, charting compari- 
sons, 209-210 
National Container Corporation: 
cover, 201 
graph, 88 
National Dairy Products Corporation: 
graphs, 68, 78, 96, 146 
map, 204 

policy statement, 25 
report improvements, 26-27 
National Gypsum Company, 38, 129 
graph, 129 
highlight, 38 
National Lead Company, enlarged re- 
port, 26 
National Sugar Refining Company: 
graph, 100 
excerpt, 42 
National Vulcanized Fibre Company, 

cover, 201 
Natural resources, owned, maps of, 204 
Net corporate investment, 178 
Net income (see also Earnings): 
graph, 45 

annual wages, and dividends, 100 
disposition of, 96 
distribution of, 101 
dollar, payroll and profits per, 98 
ratios, 35 
Net sales vs. production, 52 
Net worth (see also Capital): 
and working capital, 125 
graph, 45 

in balance sheet, 123 
meaning of, 178 



Newcomer, troubles of, 49 

New Jersey Zinc Company, booklet, 

246 
News & Views for Stockholders, 245 
Newspapers, publicity in, 285, 286 
News releases, preparing, 285-287 
New York Central Railroad Company, 

graphs, 77, 100, 122 
New York Society of Security Analysts, 

225 
New York Stock Exchange, 233 
Notes: 

in financial statement, 176 

outstanding, table, 114 
Notices: 

death, in annual report, 22 

of annual meeting, in report, 29-30 



100 Years of Security, 241 
Operating costs: 

checklist for commentary, 73 

excerpts, 75-76 

statistical data, 74-76 
Operating ratio, 35 
Operating report, functional, 181 
Operating statement, simplified, 181 
Operation '46, 236, 239 
Operations: 

comparison of, 44 
tables, 40-41 

year's, highlights of, 38-39 
Opinion Research Corporation, 14-15, 

250, 251, 255 
Organization charts, 19, 21 
Outside agency (see Independent agency) 
Outside factors, coverage of, 28 
Ownership, 160-175 (see also Stockhold- 
ers) 



Packard Motor Car Company, graphs, 55, 

56 
Pages, number of, in report, 200 
Paper: 

saving, 11-12 
selecting, 11 
Partners in Business, 245 
Patents, checklist for commentary, 104 
Payroll (see Wages) 
Penney, J. C, Company, map, 203 
Penn Mutual Life Insurance Company, 

film, 241 
Pennsylvania-Central Airlines Corpora- 
tion, graph, 44 
Pennsylvania Railroad Company, 229 
publicity in press, 285 
report to employees, 252-253 
Pennsylvania Telephone Corporation, 

graph, 152 
Pension: 

payments, highlights, 39 
trust fund, table, 139 
Percentages, comparisons by, charting, 

209 
Personal interview poll, 214 
Personal touch, 198 

Personnel (see Employees; Executives; 
Management) 

305 



INDEX 



Per unit basis, charting comparisons on, 

209 
Pfeiffej Brewing Company, graph, 125 
Philadelphia Electric Company, graph, 

155 
Philip Morris & Co., Ltd., Inc.: 
comparison oi performance, 209 
graph, 51 

Photographs, in report, 202. 208, 211 
Physical qualities, 11-12 
Pick-S., N. V., 123, 125, 159 
Pictographsj 207 
Pictorial: 
diagrams, use of, 21 
illustrations, 34 

miscellaneous, 21 1 
report, stockholders' meeting, 213-244 
Pie (hails. 201, 207 
Pitkin, Walter B„ 197 
Pitney-Bowes, Inc., graph, 152 
Pittsburgh Consolidation Coal Company, 
17 
page from report, 291 
Plant and equipment: 
charts and graphs: 

additions to, 126, 128, 129 
location of, 203 
shutdowns, 56 
checklist for commentary, 104 
depreciation (see Depreciation) 
excerpt, 120 

shut-downs, excerpt, 143 
statistics, 108-109 
Policies: 

business, in report, 281 
getting stockholder opinion on, 249 
statement of, 22-23 
annual report, 25-26 
Polls: 
employee, 250 
public opinion, 14-15 
stockholder, 213-228 
Popularized editions, 12-13 
Portal-to-portal case, 27 
Powlison, Keith, 255 
Practical Bank Credit, 35 
Practical Business Statistics, 210 
Precancelled stamps, 1 1 
Preparing annual report: 
bids, 9. 
calendar, 5-8 
corrections, 10 
date of release, 5-6 
discussions, 9 
drafting report, 9-10 
dummy, preliminary, 9 
economies in, 11-12 
mailing, 12 

physical qualities, 11-12 
printer relations, 12 
writing, 11 
gathering material, 9 
independent agency responsible for, 3-4 
methods of, 3 
officers responsible for, 3 
physical qualities, 11-12 
schedule, 5-8 
who prepares, 3 
writing report (see Writing report) 

306 



President: 

letter of, 17 

responsibility of: 
lor report, 3 

for stockholder relations, 230 
Press, publicity in, 285 
Prices: 

(hails and graphs, 03, 07, 08, 69, 
98 

excerpts from comments on, 60-01 

of industry and nation, charting com- 
parisons, 210 

selling, and potential market, 61 
Principles and policies, statement of, 22- 

23 
Printer, relations with, 12 
Printing of report, 201 

bids on, 9 

costs of, 4 
Private enterprise (see Free enterprise) 
Prochnow, Hubert V., 35 
Production, reporting on: 

checklist for commentary, 47 

excerpts on, 49-51, 167-168 

graphs, 45, 51-56, 64, 145, 148, 149 

highlights, 38 

ideas lor graphs, 47 

in annual report, 47-56 

indexes, 53 

men, 5 

of industry and nation, charting com- 
parisons, 209 

statistics, 47, 48 
Products: 

checklist for commentary, 166 

dropping of, excerpt, 49 

excerpts on, 167-168 

explained and how sold, 166-175 

samples with annual report, 201, 202 

stockholder, support of, 230 
Profit and loss statement (see Income: 

statements) 
•Profit Delusion, The," 90 
Profits (see also Earnings): 

excerpts, 94-95, 265, 266 

explaining, in payroll terms, 267-268 

graphs, 96-102, 155-159, 266 

misconceptions concerning, 14-15, 266- 
267 

necessity of, telling employees, 265-266 

public's misunderstanding of, 94-95 

survey of public opinion about, 14 
Progress, statistics of, 116-118 
Promotions, 272 
Proofs, handling, 10 
Property: 

account, checklist for Commentary, 
104 

tangible and intangible, tables, 108- 
110 
Prospectus, report not, 30-31 
Proxies: 

and annual report, 30-31 

solicitation of, contact with stockhold- 
ers through, 248 
Psychological Corporation, 14, 15, 250 
Public relations: 

activities, 280-281 

advertising annual report, 286-287 



Public relations (Conl.): 
and community, co-operation, check- 
list, 281 
and stockholder-management rela- 
tions, 229 
business policies, 281 
checklist for commentary, 280-281 
concern for public, making report re- 
flect, 279 
contents of report to reflect, 279 
coverage, 280 
director, 230 

responsibility lor report, 3 
distribution of report to public, 281 
in community, 282 
increasing, 284-285 
educational matter in report, 29, 281 
getting report lo public, 281 
goodwill of public, through annual re- 
ports, 278-288 
informing public, 278-279 
interest in report, 278 
plan of report, 279 
public groups, 281-282 
publicity, 285-288 
public's interest, 278 
salutation, including publics in, 279- 

280 
transmitting report, ways of, 282-284 
various publics, 281-282 
Public (see also Public relations): 

misconceptions affecting annual re- 
port, 14-15 
opinion surveys. 14-15 

acceptance of facts and figures, 14 
corporate ownership, 15 
private capitalism, 15 
profits, 14 
railway, 14-15 
steel industry, 15 
Publicity: 

advertising report, 286-287 

in press, 285 

kit, for local management, 288 

radio, 287-288 

releases, guide for writing, 285-286 

rules for, 286 
through films, 238-241 
through television, 238 
Public Utility Holding Company Act, 27 
Puget Sound Power & Light Co., high- 
light, 38 
Pullman Incorporated, booklet, 18, 279 

Q 

Quarterly statement to monthly report, 
234 

Questionnaires (see Surveys of stock- 
holder opinions) 

Quick ratio, 35 



Radio publicity, 287-288 
Railway: 

operating expenses, 74-75, 77 

profits of, 14, 266 

surveys, 14-15 
Rates, mailing, 10-11 



INDEX 



Ratios: 

helpful. 35 

in financial statements, 33-34 

net earnings and capital invested, to 
net sales and other income, 
graph. 97 

sometimes included, 117 
Readability of report, 194-198 (see also 
Livening up annual report) 

accounting terms and. 196-197 

English, everyday, 196-197 

expression, simplicity of, 196-197 

lack of, in charts, 210 

must look readable, 195 

personal touch and, 198 

short sentences, 195-196 

specimen pages, 289-297 

statistical tables and. 197-198 

tvpe. size of, 195 
Reading habits, survey of, 213, 216, 217, 

222, 223 
Receivables (see Accounts receivable) 
Regional meetings of stockholders, 236- 
238 

attendance, 237-238 
Remington Rand, offer to stockholders. 

246 
Replacement reserves, table. 1 1 1 
Reporter, 255 

Reports on stockholders' meetings, 241- 
244 

chairman's address, 242 

distribution of, 244 

letter form, 241 

minutes. 242 

pictorial report, 243-244 

preparation of, 244 

president's report, 242 

proceedings, summary of. 241-212 

stenographic report, 242-243 
Republic Steel Corporation, report to 

employees, 265 
Research, 166, 168 

checklist for commentary, 166 

cumulative expenditures for, graph, 
173 

excerpts on, 168 

expansion of, highlights, 38 

workers, 5 
Reserves: 

checklist for commentary, 104 

excerpt explaining, 118 

for depreciation, avoiding term, 182 

misunderstanding of, 177 

statistical tables, 111-114 
Responsibilities: 

joint, labor, management and stock- 
holders, 162, 254, 269 

preparing report, 3 

stockholders', 230 
Retirement plan, 144 
Rexall, story of, 20-21 
Riegel Paper Corporation, 45 
Robinson, Claude, 255 
Rochester Gas and Electric Corpora- 
tion: 

public opinion poll, 250 

graph, 256, 271 
Rockey, Charles S., 32 



Rockwell Manufacturing Company, page 

from report, 293 
Rogers, Sherman. 14 
Roper, Elmo, 250 
Ruberoid Co., The: 

excerpt, 141-142 

graph, 63 

questionnaire, 9 



Safety, 144 

Salaries (see Wages and salaries) 

Sales: 

checklist for commentary, 57 
dollar, 71-89 
analysis of: 
terms for, 71 

value added method, 72-73 
charts and graphs, 76-89, 262 
dividing, shortcomings of, 72 
excerpts from comments on, 75-76 
how used, presentations, 71-72, 261 
where it went, 71 
excerpts, 60-61 
graphs, 45, 54, 62-70, 75-89 
highlights, 38, 40 
ideas for charts and graphs, 57-58 
increase in, and need for working cap- 
ital, excerpt, 120 
of industry and nation, charting com- 
parisons, 209-210 
profit per dollar of, graph, 96 
ratios, 35 

statistics, 58-60, 91-93 
Samples of products with annual report, 

201, 202 
San Diego Gas & Electric Co., winning 

goodwill, 279 
Sanger Bros., Inc., graph, 169 
Savings fund, table, 139 
Schedule: 

for preparation, 5-8 
illustration of, 6, 7-8 
simple, 6 
in financial statement, 176-177 
Schenley Distillers Corporation, map, 

203 
Scott Paper Company: 
gift, 246 
magazine, 245 
Seattle Gas Company: 

comparison of performance, 210 
graph, 79 
Sec. 562 P. L. & R., 11 
Secretary: 

responsibility for report, 3 
responsibility for stockholder relations, 
230 
Secretary-Treasurer, responsibility for 

stockholder relations, 230 
Sectional maps, 203 
Sector charts, 204, 207 
Securities, owned, statistical tables, 110- 

111 
Securities Acts: 

1933, 30-31 

1934, 30, 31 

Securities and Exchange Commission, 5, 
30, 31-32, 176 



Security analysts: 

surveys addressed to, 213 
what they want, 225 
Security Analysts, New York Society of, 

225 
Selling, 166-175 

checklist for commentary, 167 
Semi-logarithmic charts, 208 

line, 206 
Sentences, short, 195-196 
Service to customers, excerpt, 169 
Sharp & Dohme. Inc.: 

comparison of performance, 210 
graph, 151 
Short Story About Standard of Califor- 
nia, A, 245 
Shut-downs, plant: 
excerpt, 143 
graph, 56 
Signode Steel Strapping Company: 
excerpt, 142 
graph, 125 
Simmons Company, 179 

excerpt, 94 
Simplified statements: 
balance sheets: 

comments on, 178-179 
examples, 183-188 
graph, 122, 123 
ways of simplifying, 177-178 
income statement: 
examples, 188-193 
in employees' reports, 258-269 
ways of, 180 
Sinking funds, statistical tables, 111 
Size: 

of company, 16 

of report, selecting, 199 

stockholders' choice, 216, 218, 221, 
°°3 
Skelly Oil Company: 

description of functions, 20 
excerpt, 42 
Sketches, 211 
Skilsaw, Inc., 54 
Smith, Weston, 1 

Snap-on Tools Corporation, graph, 145 
Social Security, Federal, 271 
Socony-Vacuum Oil Co., excerpt, 141 
South Carolina Electric and Gas Com- 
pany, excerpt, 143 
Southern Bell Telephone & Telegraph 

Company, excerpt, 95 
Southern Natural Gas Company, graph, 

66 
Special message, 23 
Speed of making report, 4 
Sprague Electric Company, operations 

analysis, 74 
Staley, A. E., Manufacturing Company, 
highlight, 38 
page from report, 294 
Stamps, precancelled, 1 1 
Standard Oil Company (Indiana), graph, 

65 
Standard Oil Company (New Jersey): 
graphs, 128, 162 
statement of principles, 24 
stockholder relations, 229, 242, 243, 246 

307 



INDEX 



Standard Oil Company of California, 

graph, 171 
Statements: 

excerpts from reports: (see Excerpts) 
financial, 31-36 

income (see Income statement) 
influenced by Securities Exchange acts, 

30-31 
principles and policies, 24 
Statistics: 
and readability of narrative, 197- 

198 
comparative analysis, 34 
in annual reports. 211-212 
on maps, 204 

progress of annual report, 2 
sales, ideas for, 58 
skeleton tables: 

balance sheet items, 107-114 
cash, 107 
hinds, 111 
inventories, 107 
property, tangible and intangible, 

108-110 
reserves, 111-114 
securities owned, 110-111 
compensation, of executive manage- 
ment, 138 
dividends, 91-93 
earnings, 91-93 
electricity and gas, 59-60 
employee relations, 136-139 

summary of, 138 
operation and traffic, 59 
ownership, 160-161 
production, 47-49 
progress, 116-118 
results at a glance, 40-41 
sales, 58-59, 91-93 
by industry, 58 
comparison, 58 
sales dollar, 74-75 
taxes, 153-154 
gasoline, 158 

government, company, and em- 
ployees, 155, 156 
income and, 156 
per dollar of operating revenue, 

159 
per share of capital stock, 159 
per share of common stock, 155 
profit before and after, 155, 157 
profits and, 156 
total, 159 
use of sales dollar, 71 
volume of business, electric and gas, 

59-60 
wages: 

and cost of living, 137 
and employees, 136-139 
working capital, 106 
volume of business, ideas for, 58 
Stech, Charles C, 250 
Steel Facts, 15 
Steel industry survey, 15 
Stenographic reports, stockholders' meet- 
ings, 242-243 
Stock (see Capital stock) 
Stockholder News, 214, 245 

308 



sup- 



Stockholder relations, 229-249 
analyzing stockholders, 230-231 
attitude toward company, 231 
duties of, 232 
functions of, 231-232 
asking stockholders for product 

port, 232 
credit cards, 246 
dividend enclosures, 233-234 (see also 

Dividend enclosures) 
film versions of reports, 238-241 (see 
also Film versions, annual re- 
ports) 
from quarterly statement to monthly 

report, 234 
getting stockholder opinion on policy, 

249 
getting support of stockholders, 229- 

230 
gifts to stockholders, 246 
improving: 

advantages of, 229-230 
techniques for, 232-233 
interim reports, with financial infor- 
mation, 233-234 (see also In- 
terim reports) 
invitations to visit plant, 249 
letters to stockholders (see Letters to 

stockholders) 
magazines, stockholders', 244-245 
mailings, miscellaneous, 246 
material sent to stockholders, 16 
meetings of stockholders: 
annual, 235-236 
regional, 236-238 
reports of, 241-244 
program: 

objectives of, establishing, 232 
sound, basis of, 230 
proxies: 

acknowledgment, follow-up of, 248 
contacts through solicitation of, 248 
regional meetings, 236-238 
replies to stockholders' letters, 249 
reports on stockholders' meetings, 241- 
244 (see also Reports on stock- 
holders' meetings) 
responsibility for, fixing, 230 
sampling for results of program, 248 
special letters to stockholders, 244 
special offers to stockholders, 246 
surveys among stockholders, 213-228, 

248-249 
telling results of surveys, 214 
Stockholders (see also Stockholder rela- 
tions): 
analyzing, 230-231 
checklist for commentary, 160 
excerpts explaining function of, 75, 
161, 162 
to employees, 269-271 
functions of, 231 
growth in number, 229 
highlights, 39 
on cost of reports, 228 
statistical data on, 160-161 
support of, 230 
surveys among, 213-228, 248 
type of, 16 



Story Behind a Trade-Mark, The, 246 
Story of 1946, The, 240 
Stryker, Roy E„ 207 
Studebaker Corporation, The: 

center spread, 18, 52 

graph, 52 

report to employees, 253, 255, 276 
Subjects treated in annual report, 18-19 
Subsidiaries, location of, 203 
Suburban Propane Gas Corporation, 123 
Summaries (see also Highlights): 

at-a-glance, 40-41 

excerpts from, 41 

of operations, 40-41 

statistical, ideas for, 40-41 

progress statistics, 116-118 
Sun Oil Company: 

excerpt, 95 

graph, 56 
Sunshine Biscuit Co., public-relations 

theme, 279 
Supplementary ratios, 35 
Supplies: 

materials and, checklist, 73 

sources of, maps, 204 
Surplus: 

avoiding term, 182 

checklist for commentary, 104 

explaining, to employees, 259, 264 

misunderstanding of, 177 
Survey of Stockholder Relations Activ- 
ities, A, 282 
Surveys (see also Surveys of stockholder 
opinions): 

among employees, 250 

among public, 14-15 

among stockholders, 213-228, 248-249 

of employee opinions, methods of 
making, 250 

of stockholders' annual report, 1-2 

public acceptance of facts and figures, 
14 

railway, 14-15 

steel industry, 15 
Surveys of stockholder opinions, 213-228 

Allegheny Ludlum Steel Corporation, 
213, 215-216 

attention given report, 224-225 

attitude toward company, learning, 
231 

Balasny survey, 213, 223-224 

Borden Company, 213, 217-219 

compariies making best reports, 228 

Consolidated Edison Company, 213, 
225-226 

Controllership Foundation, 14, 15, 227 

cost of reports, stockholders' opinion 
of, 228 

Gates survey, 213, 221-222 

General Foods Corporation, 213, 219- 
220 
poll of women stockholders, 214, 
220-221 

groups of, 213 

how to use, 213 

mailed, 214 

Mellott, M. K., & Co., 213, 226-227 

on attention given report, 224-225 

on profits, 14 



INDEX 



Surveys of stockholder opinfbns (Cont.): 
personal interview poll, 214. 220-221 
portions read, 218, 219, 220-221, 225 
pre-issue questionnaire, 214 
sample surveys, 248 
scientific conduct of, 248-249 
size desired, 216, 218, 221, 223 
subjects in which interested, 213, 215, 

217, 219, 221, 223 
telling stockholders results of. 214 
West Virginia Pulp & Paper Co., 213, 

217 
what securitv analyst wants, 225 
what stockholders do with report, 221- 
222 

Sutherland Paper, stockholder relations. 
229 

Swift & Company: 
excerpt, 95 
report to employees. 268-269 

Sutton, Harold S., 230-231, 244, 245 

Svlvania Electric Products, Inc.: 
comparison of performance, 209 
graphs, 63, 126, 128 

Symbols, adding interest with, 207 

System maps, 204 



Table of contents in reports, 36-37 
Tables (see Statistics: skeleton tables): 

in financial statement, 176 
Tampa Electric Company, report to em- 
ployees, 265 
Taxes, 153-159 

charts and graphs, 99, 148, 155, 156- 
159 

checklist for commentary, 153 

excerpt, 95 

highlights. 39, 40 

ideas for charts and graphs, 153 

in financial statements, 182-183 

statistics, 153-154 (see also Statistics: 
taxes) 
Television, annual report over, 233, 238 
Texas Company, The, 158 
Thatcher Glass Manufacturing Com- 
pany, Inc., report to employees, 
253' 
Thompson Products, Inc., 129, 256, 260, 
262-263 

graph, 129, 262 

report to employees, 256, 260, 263 
Tilo Roofing Company, Inc.: 

highlight, 38 

map, 203 
Trans-Canada Air Lines, 62 
Treasurer, responsibility for: 

report, 3 

stockholder relations, 230 
Trends, comparisons of, charting, 208 



'"Trends in Accounting Terminology and 
Form Revealed by 1946 Corpo- 
rate Reports," 183 
Trusts and Estates, 19, 90 
Type: 

faces, and legibility, 200 

right size of, 195 

specimen pages illustrating. 289-297 

too small, 211 

U 

Union Bag & Paper Corporation, 83, 203 
graph, 83 
map, 203 
Union Carbide & Carbon Corporation, 
18, 144 
booklet. 18 
safety, excerpt, 144 
Unions: 

information from, to employees, 251 
policy in negotiating with, excerpt, 

141-142 
representation, excerpt, 142 
United Aircraft Corporation, pictorial 

report, 18 
United Electric Coal Companies, The, 

graph, 129 
United-Rexall Drug, Inc., description of 

functions, 20-21 
United Specialties Company, directory, 

21 
United States Steel Corporation: 
excerpt, 76 
film, 240 

radio publicity, 287 
report to employees, 268 
United Wallpaper, Inc., cover, 201 



Vacations, 143 

Value added method of dividing sales 

dollar, 72-73 
Vanadium-Alloys Steel Co., operating 

statement, 181 
Variation, lack of, 210 
Vice-president, responsibility for report, 

3 
Vick Chemical Company, 70, 98, 210 
graphs, 70, 98 

comparison of earnings, 210 
Volume of business, 57-70 (see also Sales) 

W 
Wage and Hours Law, 27 
Wage Earner Forum, 250 
Wages and salaries, 134-152 

ability to pay, basis for determining, 

excerpt, 141 
charting comparisons with industry 
and nation, 210 



Wages and salaries (Cont.): 

charts and graphs, 97-99, 100, 101, 145- 
152, 155 

checklist for commentary, 134-135 

excerpts, 140-143 

executive, 138, 142-143, 273 

highlights, 39, 40 

ideas for charts and graphs, 135-136 

sound basis for, excerpt, 140 

statistics, 136-139 
Walworth Company, The, magazine, 

166 
Walworth Today, 166 
Warehouses, location of, map, 203 
West Virginia Pulp & Paper Co.: 

excerpt, 144 

survey of opinion, 213, 217 
Westinghouse Air Brake Company: 

graph, 254 

report to employees, 253 
Westinghouse Electric Corporation, pub- 
lic-relations activities, 280 
"What the Factory Worker Really 

Thinks," 250 
"What the Stockholders Want to Know," 

213, 221 
Why Kill the Goose, 14 
Williams, Aubrey, 183 
Wisconsin Electric Power Company, 

graph, 46 
Wisconsin Power and Light Company: 

chart, 155 

excerpt, 144 
Woolworth, F. W., Company: 

comparisons of performance, 209 

graph, 157 
Workers (see Employees) 
Working capital: 

changes in, 106, 119 

charts and graphs, 45, 124-125 

checklist for commentary, 103 

excerpts, 119, 120 

need for, increase in sales and, ex- 
cerpt, 120 

ratio, 35 

statistics, 106 
Workmen's Compensation, 271 
Writing report: 

drafts of, 9-10 

language, 194-198 

saving time, cutting costs, 11 



Yale & Towne Manufacturing Company, 

planning report, 17 
Year's operations at a glance, 38-46 

charts and graphs, 40-41, 43-46 

highlights, 38-39, 40 

statistical summaries, 40 
Year's Work, The, 239 



309 







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